New accounting rules coming into force on 1 January 2016 provide businesses with a one-off opportunity to strengthen their balance sheets.
We are advising that all businesses act before the end of 2015 by electing to revalue property, plant and machinery assets to benefit from the significant potential benefits that the new rules provide.
From the start of next year, previous accounting standards are being replaced by a single one called Financial Reporting Standard 102 (FRS 102).
Our partner, Roy Tubman, explained: “The new rules allow a one-off revaluation using the principle of ‘fair value’ to revise the balance sheet value of a business’s property, plant and equipment assets. This figure is then deemed to be the assets’ costs for accounting purposes.”
Fair value is defined by FRS 102 as an amount at which an asset can be exchanged between knowledgeable and willing parties in an arm’s length transaction. It leads to balance sheets which better reflect the current value of assets and liabilities than under the current accounting regime.
After transition to the new standard, FRS 102 only requires valuations to be performed with “sufficient regularity” giving further motivation to businesses to undertake valuations sooner rather than later.
Roy continued: “The new opportunity to record assets at fair value could enable many businesses to effectively rebuild their asset registers, such as in cases where machinery has been written down to zero but is still a valuable part of a company’s assets.
“The result will be to boost a business’s balance sheet which provides significant benefits to owners either seeking to secure investment, obtain finance or sell.
“We have carried out fair value valuations for companies throughout the UK and on each occasion it has delivered a significant uplift in asset values.”