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EUROPEAN VALUATION APPLICATION - 1 VALUATION FOR THE PURPOSE OF FINANCIAL REPORTING. Directives 78/660/EEC, 83/349/EEC, 86/635/EEC and 91/674/EEC The EU has since introduced most of the International Accounting standards/International Financial Reporting

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Presentation Transcript
introduction
Directives 78/660/EEC, 83/349/EEC, 86/635/EEC and

91/674/EEC

The EU has since introduced most of the International

Accounting standards/International Financial Reporting

Standards through Commission Regulation (EC) No.1725|2003

of 29 September 2003 adopting certain international accounting standards in accordance with Regulation (EC) 1606|2002

The IAS/IFRS applicable to property-related assets are:

Introduction
framework for the preparation and presentation of financial statements
Framework for the Preparation and Presentation of Financial Statements
  • The following “Framework” as adopted by the IASB in

April 2001 set out the concept underlying the preparation of financial statements

  • The objective of the financial statements
  • Qualitative characteristics
  • Recognition and measurement of asset
classification of assets
Land and buildings are normally classified for the purpose of financial

statement into one of five categories

owner-occupied for the purpose of the business, whether specialised

or general;

investment for the purpose of generating income or capital gain;

surplus to the requirements of the business;

trading stock, designated as current asset; and

leases

Property, plant and equipment

Investment properties

Property surplus to operational requirements

Trading stock

Leases

Classification of Assets
the selection of consistent basis of valuation
International Accounting Standards currently adopt

two models for the recognition of property asset in

the balance sheet:

- The Cost Model

- The Fair Value Model

IAS 16 - Property, plant and equipment

IAS 17 – Leases

IAS - 40 investment property

THE SELECTION OF CONSISTENT BASIS OF VALUATION
fair value
Under IAS 16, the commentary as to Fair Value is as follows:

- “The fair value of land and building is usually determined from market based evidence by appraisal that is normally undertaken by professionally qualified valuers.” (IAS 16 par. 32)

- “If there is no market based evidence for Fair Value because

of the specialised nature of the items of property … and the items is

rarely sold, except as part of a continuing business, an entity may need to estimate fair value using an income or a replacement cost approach.” (IAS 16, par 33)

New Fair Value Measurement Guidance

Fair Value
apportionment between land and buildings
Apportionment between Land and Buildings
  • An apportionment may be required to allow a proper accounting to

be made for depreciation

  • Depreciation is defined as the measure of the wearing out, consumption

or others loss of value of a fixed asset whether from used, passage of

time or obsolescence arising from technological or market changes.

  • The apportionment to assess the depreciable amount must be established

by one of the following procedures:

- Deducting from the cost or valuation of the asset the value of the land

- Making an assessment of the net current replacement cost of the buildings to reflect the value of the asset to the business at the date of valuation.

  • The land element is considered to be the bare land which is in a developable state of the purpose of the undertaking
disclosure provisions
Disclosure Provisions
  • The instructions, date and purpose of the valuation
  • The basis of the valuation, including type and definition of value
  • Tenure of the property and its classification as an asset
  • Identification of the property and its location
  • Date and extent of the inspection
  • Regulatory framework
  • Any special assumptions and limiting conditions
  • Plant, machinery and equipment
  • Compliance statement with European Valuation Standards
  • Methods of valuation employed; and
  • Other matters relevant to the valuation