Abstract
Purpose: The purpose of our project is as the title indicates the accounting treatment of investment properties with a focus on the valuation and the accurate presentation. The title sets the overall framework for our project and raises several issues. Based on this, the project has the following scope: What are the main challenges arising from the accounting treatment of investment properties? Here with a special focus on issues related to the fulfilment of the accurate presentation. Results: We have concluded that " the accurate presentation" is derived from two keywords: relevance and validity. These two keywords form the entire basis for an audit to meet the requirement for "the accurate presentation " of the company's financial position. Relevance is met if the information in the annual report can make a difference for the decision maker. Validity is met if the information in the annual report is credible. In Denmark the accounting treatment of investment properties is divided into ÅRL and IFRS respectively. Upon initial factoring in the investment properties are measured at cost price. According to ÅRL, subsequent measurements can be recognized either as cost price with deduction of depreciation, by the fair value method with value adjustments in the income statement or by applying the fair value method with value adjustments in equity. When valuing investment properties at fair value, the value must be calculated in accordance with the Fair Value Hierarchy of the Danish Financial Statements Act. An investments property may be valued at fair value based on comparable transactions, the standard income model, and the DCF-model. The methods are listed according to the fair value which the fair value hierarchy dictates. Based on simulations in established risk scenarios analysis have been conducted. In all three simulations we found that the valuation for the fictitious investment property was determined differently based on the standard income model compared to the DCF model. In theory, there is only one fair value for an investment property, which is why the choice of fair value model should have no impact in valuation. Based on our analysis, we have identified two parameters that explain this. The parameters are "variance" on the cash flow and "security" on the cash flow. If the future cash flow has a high variance and high security, it will be most advantageous to use the DCF model. On the other hand if the future cash flow has a low variance and high security, it would be most advantageous to use the standard income model. The project also includes a review of two selected annual reports. Here we will look at the companies' treatment of investment properties, the impact of a change in the return requirement on the financial position of the companies and whether validity is met.
| Educations | Graduate Diploma in Accounting and Financial Management, (Diploma Programme) Final Thesis |
|---|---|
| Language | Danish |
| Publication date | 2021 |
| Number of pages | 89 |