This document discusses accounting for different types of properties. It explains that a property can be a fixed asset, investment property, owner-occupied property, or trading property. Investment properties can be accounted for using either fair value or cost models under IAS standards. Under UK GAAP, investment properties must be revalued. Owner-occupied properties can be accounted for using cost or revaluation models. Trading properties are treated like stock at the lower of cost or net realizable value. The document also provides background on Aqhuman Financial Training and its principal, Kevin Amor.

1. www.aqhuman.com
Accounting for properties
Aqhuman financial training & coaching

2. www.aqhuman.com
Accounting for properties
Aqhuman financial training & coaching
Is the property a fixed
asset?

3. www.aqhuman.com
Accounting for properties
Aqhuman financial training & coaching
Is the property a fixed
asset?
Yes No
Is the property an
investment
property?
Trading
property

4. www.aqhuman.com
Accounting for properties
Aqhuman financial training & coaching
Is the property a fixed
asset?
Yes No
Is the property an
investment
property?
Yes No
Investment
property
Owner-
occupied
property
Trading
property
An investment
property is one
that is let to a
tenant outside
one’s corporate
group at an arm’s
length rent
Eg. a company’s
offices, retailer’s
shop

5. www.aqhuman.com
Accounting for properties
Aqhuman financial training & coaching
Is the property a fixed
asset?
Yes No
Is the property an
investment
property?
Yes No
Investment
property
Owner-
occupied
property
Trading
property
A current asset is
one that when
acquired is
intended to be
liquidated

6. www.aqhuman.com
Investment properties – International
Standards (IAS)
Aqhuman financial training & coaching
•Investors have a choice of showing investment properties
at either market value (“fair value”) or “cost”
•See the owner-occupied section for details on the “cost”
model (with one extra bit for IP owners: investors must still
declare the value in a note to the account)

7. www.aqhuman.com
Investment properties – International
Standards (IAS)
Aqhuman financial training & coaching
•The fair value model means that the company needs to use
an annual up to date valuation, undertaken by a suitably
qualified value
•The valuer does not need to be independent of the
company
•Movements in value pass through the income statement

8. www.aqhuman.com
Investment properties – International
Standards (IAS)
Aqhuman financial training & coaching
•You buy a property for £10m at the start of year 1; revalue it to £12m at the end of year 1
and then sell it for £15m in year 2.
Start yr1
Property 10
Cash -
Debt (10)
-
Retained profits -
Income statement
Surplus on valuation -
Profit on disposal -
Profit -
You buy the
property for
£10m using debt

9. www.aqhuman.com
Investment properties – International
Standards (IAS)
Aqhuman financial training & coaching
•You buy a property for £10m at the start of year 1; revalue it to £12m at the end of year 1
and then sell it for £15m in year 2.
Start yr1
Property 10
Cash -
Debt (10)
-
Retained profits -
Income statement
Surplus on valuation -
Profit on disposal -
Profit -
End yr 1
12
-
(10)
2
2
2
-
2
You revalue the
property by £2m
which passes
through the
income statement

10. www.aqhuman.com
Investment properties – International
Standards (IAS)
Aqhuman financial training & coaching
•You buy a property for £10m at the start of year 1; revalue it to £12m at the end of year 1
and then sell it for £15m in year 2.
Start yr1
Property 10
Cash -
Debt (10)
-
Retained profits -
Income statement
Surplus on valuation -
Profit on disposal -
Profit -
End yr 1
12
-
(10)
2
2
2
-
2
End yr 2
-
15
(10)
5
5
-
3
3
You sell the
property for
£15m making a
£3m profit in
year 2

11. www.aqhuman.com
Investment properties – UK gaap
Aqhuman financial training & coaching
•Unlike IAS where there is a choice, under UK gaap investors
must revalue their investment properties
•The movement in values goes to the balance sheet (not the
income statement) onto a line called the revaluation
reserve.

12. www.aqhuman.com
Owner-occupied properties
Aqhuman financial training & coaching
•Investors may either revalue the property or show it at cost
•The “cost” option involves splitting the purchase price
(together with fees) between the land and building
elements
•There is a presumption that the land element does not
depreciate but that the building does
•If the owner opts for the valuation option then the
movement in value passes through the revaluation reserve
on the balance sheet and not the income statement

13. www.aqhuman.com
Trading properties
Aqhuman financial training & coaching
•Trading properties are treated like “stock”
•They are held on the balance sheet at the LOWER of
purchase price (plus fees) and sales value (after sales costs)

14. www.aqhuman.com
Aqhuman Financial Training
Aqhuman’s principal is Kevin Amor, FCA. Kevin qualified as a
chartered accountant with PWC. He spent 12 years working
in commerce at financial controller/director level.
Kevin now has more than 12 years experience in financial
training. He trains managers at all levels and gives 1 to 1
financial coaching to senior executives.
He also teaches corporate finance and
accounting for a number of business
schools’ MBA programmes.
Aqhuman financial training & coaching