Property Valuation, 3rd Edition

Chapter 11Valuations for Financial Statements and for Secured Lending

11.1 Valuing property for financial statements

Commonly referred to as asset valuations, these relate to the valuation of property assets for inclusion in financial statements such as company accounts, stock exchange prospectuses and documents for takeovers and mergers. Many types of organisations either are required to or prefer to report the current value (known as fair value in accounting) of their property assets rather than report the historic acquisition cost, including business owners and occupiers, investors and public bodies.

Property assets are valued so that their current value is reported, rather than their historic acquisition cost. This helps an entity make more informed decisions about what to do with them and is useful to management, owners and other stakeholders in making economic decisions. Regular revaluations of property assets may be required by statute.

There are implications for the organisation's financial statement when reporting current value rather than historic cost. The income statement will incorporate realised profits (losses) and unrealised valuation gains (losses). Also, because the income statement records net proceeds from disposals, realised profit will not look as high as it would if the carrying amount was historic cost. The income statement may report more volatile earning figures for property investment companies as valuation surpluses and shortfalls will appear, to ...