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.

peopleFrankie Boyle responds to referendum result in characteristically offensive style
Life and Style
Couples have been having sex less in 2014, according to a new survey
New Articles
i100... with this review
Holly's review of Peterborough's Pizza Express quickly went viral on social media
footballTim Sherwood: This might be th match to wake up Manchester City
Arts and Entertainment
musicHow female vocalists are now writing their own hits
New Articles
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
Blahnik says: 'I think I understand the English more than they do themselves'
Arts and Entertainment
Michelle Dockery as Lady Mary Crawley in Downton Abbey
TVInside Downton Abbey series 5
Life and Style
The term 'normcore' was given the oxygen of publicity by New York magazine during the autumn/winter shows in Paris in February
fashionWhen is a trend a non-trend? When it's Normcore, since you ask
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam