Brewers rally against property depreciation plan
Thursday 17 October 1996
The discussion paper issued by the board today takes the view that, since it is normally uneconomic to provide a limitless extension to the life of a property, such as a hotel or public house, through maintenance and refurbishment, there should be "a general requirement for depreciation of properties".
However, brewers are prominent among the approximately 18 per cent of companies that are said to not depreciate their properties. They argue that, because they traditionally spend large amounts each year on maintaining properties in good condition, having to depreciate them as well would amount to "a double hit". They also claim that certain properties, such as well-known hotels and pubs, are of historic value and should not be depreciated.
The ASB also believes that assets should be separated into three categories for depreciation purposes: land would not be subject to depreciation, buildings would have a long life, and general fittings would have a much shorter life.
In its consideration of the "initial measurement" of assets, the document envisages a continuation of the practice of measuring a tangible fixed asset initially at its cost and writing it down where necessary to its recoverable amount. It argues that the unclear position on the capitalisation of interest should be resolved and that capitalisation either be mandatory or prohibited. The ASB invites comments on which approach should be adopted by the close of the consultation period on 17 January 1997.
On valuation, the ASB proposes that companies that revalue properties should have to undergo a full external valuation at least every five years, with interim valuations, involving less work, in the intervening years.
The fourth area covered by the document is investment properties. These are exempt from depreciation, and the ASB accepts that as they play a fundamentally different role they should continue to be exempt.
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