Asset changes threaten to cut company profits

PROFITS at some UK companies could fall by up to a third, placing their dividend payments in jeopardy, if proposed changes to controversial accounting practices are introduced, analysts warned yesterday.

Worst-hit could be hotel groups such as Forte and Stakis, though other companies with large property portfolios could also be affected.

Shares in brewers such as Bass, Whitbread and Vaux came under pressure last week amid reports that the Accounting Standards Board would recommend companies be forced to depreciate their freehold and leasehold property assets. "Such a move would affect brewing company assets, thereby reducing earnings per share substantially," wrote broker UBS in a research note.

At issue is the way these assets are treated on the balance sheet. The ASB is in talks with the Institute of Chartered Surveyors and other parties about the best way to harmonise valuation of fixed assets such as property. A discussion paper is due out early next year.

Reaching agreement on a uniform practice will not be easy because the useful life of a building is very difficult to determine. While some companies mark their properties down every year to reflect their real market values, others keep them on the books at the original purchase price.

Supermarkets recently bit the depreciation bullet by amortising their out-of-town shopping centres at 2 per cent a year. But hotels have resisted following their lead. Although budget lodges probably have a limited life, prestige London hotels such as the Grosvenor or the Savoy have resale values as high as or higher than indicated in the accounts.

Takare, Britain's largest nursing home operator, recently bowed to institutional shareholder pressure by adopting a more conservative accounting policy. Buildings will be depreciated by 2 per cent a year, while the interest cost of funding new nursing home developments will be charged against profits instead of being capitalised (added to the balance sheet with no effect on profits) for the first three months of the home's operation.

The changes will reduce Takare's profits this year by pounds 3.5m, or 15 per cent. But one highly-rated City analyst was unimpressed. "Takare operates in a lowly rated sector so it does not set a big precedent." Larger companies still have not faced up to the issue. "There is no full and proper debate."

A spokesman for the ASB admitted present standards did not amount to a level playing field. "Accounts are meant to give a true and fair view of a company's financial position, but there is a degree of inconsistency in reporting at present. We are trying to make sure there is comparability and predictability."

However, a mandatory requirement to change accounting standards is still two or three years off, the spokesman added.

PROMOTED VIDEO
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
techApp to start sending headlines, TV clips and ads to your phone
Arts and Entertainment
Taylor Swift crawls through the legs of twerking dancers in her 'Shake It Off' music video
musicEarl Sweatshirt thinks so
Life and Style
tech
Arts and Entertainment
Daniel Radcliffe and Zoe Kazan in What If
filmReview: Actor swaps Harry Potter for Cary Grant in What If
News
Our resilience to stress is to a large extent determined by our genes
science
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Planning Manager (Training, Learning and Development) - London

£35000 - £38000 per annum + benefits: Ashdown Group: A highly successful, glob...

Asset Finance Solicitor

Highly Competitive Salary: Austen Lloyd: CITY - ASSET FINANCE - An outstanding...

HR Analyst - Banking - Bristol - £350-£400

£350 - £400 per day: Orgtel: HR Analyst - Banking - Bristol - £350 - £400 per ...

Techincal Accountant-Insurance-Bank-£550/day

£475 - £550 per day + competitive: Orgtel: Senior Technical Accountant-Insuran...

Day In a Page

Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

Lauded therapist still in limbo as battle to stay in Britain drags on

Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law
Lewis Fry Richardson's weather forecasts changed the world. But could his predictions of war do the same?

Lewis Fry Richardson's weather forecasts changed the world...

But could his predictions of war do the same?
Kate Bush asks fans not to take photos at her London gigs: 'I want to have contact with the audience, not iPhones'

'I want to have contact with the audience, not iPhones'

Kate Bush asks fans not to take photos at her London gigs
Under-35s have rated gardening in their top five favourite leisure activities, but why?

Young at hort

Under-35s have rated gardening in their top five favourite leisure activities. But why are so many people are swapping sweaty clubs for leafy shrubs?
Tim Vine, winner of the Funniest Joke of the Fringe award: 'making a quip as funny as possible is an art'

Beyond a joke

Tim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

Sadly though, the Lawrence of Arabia star is not around to lend his own critique
Wicken Fen in Cambridgeshire: The joy of camping in a wetland nature reserve and sleeping under the stars

A wild night out

Wicken Fen in Cambridgeshire offers a rare chance to camp in a wetland nature reserve
Comic Sans for Cancer exhibition: It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans

Comic Sans for Cancer exhibition

It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans
Besiktas vs Arsenal: Five things we learnt from the Champions League first-leg tie

Besiktas vs Arsenal

Five things we learnt from the Champions League first-leg tie
Rory McIlroy a smash hit on the US talk show circuit

Rory McIlroy a smash hit on the US talk show circuit

As the Northern Irishman prepares for the Barclays, he finds time to appear on TV in the States, where he’s now such a global superstar that he needs no introduction
Boy racer Max Verstappen stays relaxed over step up to Formula One

Boy racer Max Verstappen stays relaxed over step up to F1

The 16-year-old will become the sport’s youngest-ever driver when he makes his debut for Toro Rosso next season
Fear brings the enemies of Isis together at last

Fear brings the enemies of Isis together at last

But belated attempts to unite will be to no avail if the Sunni caliphate remains strong in Syria, says Patrick Cockburn
Charlie Gilmour: 'I wondered if I would end up killing myself in jail'

Charlie Gilmour: 'I wondered if I'd end up killing myself in jail'

Following last week's report on prison suicides, the former inmate asks how much progress we have made in the 50 years since the abolition of capital punishment