Property group Grainger has been forced to restate its accounts by the Financial Reporting Review Panel after boosting profits by classifing trading stock as 'investment properties'.
The property group will restate profits, reducing its earnings by £16.5m as a result of the move.
The move comes after the property group transferred trading properties to a Jersey trust. On transfer, the properties were reclassified as investment properties and a gain on revaluation to market value of £23.5m was recognised in the income statement.
IAS 40 'Investment property' specified that transfers to investment property can only be carried out where there is evidence of a change in use, which Grainger failed to provide.
In an announcement today, Grainger's directors state that they have conducted a considered and detailed review of all of the group’s property assets.
As a result of their review, the directors have concluded that, among other findings, the properties selected for transfer to the JPUT were originally acquired for the purpose of long term capital appreciation and rental growth and, consequently, should always have been shown as investment property rather than trading stock.
The error has been corrected by a prior year adjustment, restating the opening 2006 balance sheet (i.e. at 1 October 2005) and the income statement for the year ended 30 September 2006.
The total value of the assets reclassified in this prior year adjustment amounts to £67m out of Grainger’s total property portfolio valued at £2.0bn at 30 September 2006. The correction results in the reduction of the 2006 reported profit after tax by £16.5m. Together with the effect of other changes described in the company’s announcement, the 2006 profit after tax reduces from £50.5m to £33.5m with net assets reducing by £0.5m to £250.1m.
The Panel welcomed the action taken by the directors.
Further reading:
Comments