defvas project in partnership with tegova and the irrv european valuation application - 1 valuation...

Defvas Project

In Partnership with TEGoVA and the IRRV

EUROPEAN VALUATION APPLICATION - 1VALUATION FOR THE PURPOSE OF FINANCIAL REPORTING

Defvas Project


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:

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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

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CLASSIFICATION OF ASSETS • Land and buildings are normally classified for the purpose of financial

statement into one of five categories

(i) owner-occupied for the purpose of the business, whether specialised

or general;

(i) investment for the purpose of generating income or capital gain;

(ii) surplus to the requirements of the business;

(iii) trading stock, designated as current asset; and

(iv) leases

• Property, plant and equipment

• Investment properties

• Property surplus to operational requirements

• Trading stock

• Leases

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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

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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

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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

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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

defvas project in partnership with tegova and the irrv european valuation application - 1 valuation...

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