L plc has never revalued its land and buildings. The directors are unsure whether they should adopt a policy of doing so. They are concerned that FRS 15 – Tangible Fixed Assets has an “all or nothing” approach which would impose a duty on them to maintain up-to-date valuations in the balance sheet for all land and buildings into the indefinite future. They are also concerned that the introduction of current values will make the accounting ratios based on their balance sheet appear less attractive to shareholders and other users of the financial statements.

Required Authors’ note: Students should ignore part

(c) of this question as the relevant data has not been provided.

(a) Explain why FRS 15 requires those companies who revalue fixed assets to revalue all of the assets in the relevant classes and why these valuations must be kept up to date.

(7 marks)

(b) Explain whether it is logical for FRS 15 to offer companies a choice between showing all assets in a class at either cost less depreciation or at valuation. (4 marks)

(c) Calculate the figures that would appear in L plc’s financial statements in respect of land and buildings if the company opts to show the factories at their valuation. You should indicate where these figures would appear, but do NOT prepare any detailed notes in a form suitable for disclosure. (6 marks)

(d) Explain how the revaluation of fixed assets is likely to affect key accounting ratios and explain whether these changes are likely to make the company appear stronger or weaker. Do NOT calculate any ratios in respect of L plc. (8 marks)

CIMA, Financial Accounting – UK Accounting Standards, November 2001 (25 marks)