Company assets question for a Chartered Accountant please?

[PlayingDetective]

Username changed because this is potentially outing and I don’t want to link to my previous threads.

We live next to a house which is owned by a company that used to rent it out. When it became empty, it was targeted by local kids and a huge amount of damage was done to it. The company haven’t done any work on it to allow it to be rented out again and it currently stands boarded up and a complete eyesore. Lots of people are interested in buying it but the company won’t even discuss price and say they won’t sell. They say they intend to rent it out - but it would take years to payback the minimum amount that would need to be spent to make it habitable (and it still wouldn’t be worth what they paid for it).

I’d say the house value is currently not even half what was paid for it but the balance sheet value of fixed assets has not been downgraded to reflect this according to the records on Companies House. I’m wondering if the owner (who has a number of companies) is using the assets from this company as collateral for other business dealings – could any Chartered Accountants say whether this might be the case?

If so, is it legal to inflate (by not giving an accurate value) a company’s assets in this way, and can a company be made to provide an accurate valuation in their accounts? And by whom?

You might say I should keep my nose out but we want to sell and won’t get anything like a good price with next door in such a state.

There is nothing you can do about it.
The company would have to have it valued to use as collateral.
More likely it is being held onto to use as a loss against high profits.

Thanks Bollindger Not the news I’d been hoping for. Looking at the other company accounts, I don’t think any of them have been making much of a profit and I’m not sure if this company has the potential to make much more in the future. So could the property be transferred to another company to offset against profits if any of them come good in the future?

Small companies don’t need to show fixed assets at current value in their accounts. Lenders would want a professional valuation and wouldn’t use accounts. Until it is sold, any losses aren’t useable.

What you could do is tell the council. They often take over such properties, redo them and rent them out, taking their own cost from future rent.

We’ve spoken to the council and they aren’t going to do that at this point.

User would they be able to do an inter company transfer at the higher value without a valuation and then claim the loss subsequently?

From an accounting perspective, the property is likely to be recorded at cost and then depreciated to show a net book value in the company accounts. It is very unlikely to be recorded at fair value (market value). Note, investment property may be fair valued but I think it would be very unlikely in the books of a small company).

Therefore, if they’ve owned the property for a long time the net book value (depreciated cost) is likely to be well below the fair value - even in a smashed up state.

You only have to book an impairment (a reduction in value) on a fixed asset if the carrying value (the net book value) is lower than the cost to sell (ie the market value). The impairment calc is a little more complicated - but that’s how it would work in this case. It’s likely that a smashed up house may need to be refurbed but it’s probably still worth more than they paid for it.

So I expect their accounts are correct unfortunately. Note I am not a tax expert, but I am a technical accountant !

Apologies, that should read that you only have to book an impairment if the fair value less costs to sell, is lower the carrying value (net book value) - which is unlikely in this case.

Mumtofourandnomore has answered the technical accounting question.

I'd say the reason the owner is retaining the property is as a long term investment for building wealth.

And I'm sure the asset would perform better if it was properly maintained! Have you approached them about proper maintenance?