Accountancy and corporate property management ‐ A briefing on current and proposed provisions relating to UK corporate real estate
| Published date | 01 April 2001 |
| Pages | 211-223 |
| DOI | https://doi.org/10.1108/14635780110384171 |
| Date | 01 April 2001 |
| Author | Michael Evans,Nick French,Brenna O’Roarty |
| Subject Matter | Property management & built environment |
Practice briefing:
Accountancy
211
Journal of Property Investment &
Finance, Vol. 19 No. 2, 2001,
pp. 211-223. #MCB University
Press, 1463-578X
Received November 2000
Revised December 2000
PRACTICE BRIEFING
Accountancy and corporate
property management
A briefing on current and proposed
provisions relating to UK corporate real
estate
Michael Evans, Nick French and
Brenna O'Roarty
Department of Land Management and Development,
The University of Reading, Reading, UK
Keywords Accounting, Capitalization, Lease, Flexibility, Real estate, Strategy
Abstract Discusses the role of property within corporate organisations and, in particular,
discusses the impact of real estate on the balance sheet of UK-based corporate businesses. Also
explains how new and proposed provisions from the Accounting Standards Board (ASB) may
affect the way in which property is held and managed in the future. Considers the proposed
changes from the viewpoint of the property professional and from an accountancy perspective.
Concludes that, in the future, management will be required to apply a greater focus on their
property portfolio in order to meet the relevant accounting standards.
Introduction
From the viewpoint of an operational company, property fulfils two roles. Firs t,i t
provides space from which the business can operate. In this role it is simply one
of the three ``factors of production''. The other ``factors'' are money (capital) and
people (labour)[1]. As a factor of production it will be viewed as a cost to the
company[2]± that cost being deducted, in the case of leaseholdproperties, as rent
paid and, in the case of freeholds, as a charge (depreciation) for usage. The second
role of property to a company is as a financial asset. This applies principally,
although not exclusively, to freehold property. The ownership of the property
will be seen as an asset; a holding that benefits the company. A property can be
held in the accounts either at its original cost (historic cost accounting) or at its
current marketvalue. Current cost accounting was introduced in the early 1980s
and allowed for the entire accounts to be prepared on a current cost basis. The
situation we have today is called modified historical cost valuation. In either
form, it represents an underlying benefit to the company that can be used as
collateral for raising finance either directly (via a mortgage or non-specific
secured loan) or indirectly (via a share issue or debentures on the stock market).
However, traditionally property has always been viewed as a ``reactive''
asset; one which is bought or rented as a result of operational need. It is not
normally used or held in a way that is most beneficial to the (paper)
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