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Article
Publication date: 1 March 2021

Jilnaught Wong, Norman Wong and Willow Yangliu Li

This paper aims to examine the financial statement impact resulting from the tax depreciation on buildings that was reinstated on 25 March 2020 as part of the New Zealand…

Abstract

Purpose

This paper aims to examine the financial statement impact resulting from the tax depreciation on buildings that was reinstated on 25 March 2020 as part of the New Zealand Government’s coronavirus (COVID-19) tax support package. The COVID-19 pandemic and the tax relief created an accounting response to map the environment to accounting reports, reversing previously recognized deferred tax liabilities and increasing reported income as a result.

Design/methodology/approach

This is an exploratory and descriptive study to understand the accounting response and impact on companies’ financial statements following a COVID-19 tax relief to support businesses in a dire financial situation as the effects of COVID-19 took hold.

Findings

First, the accounting response provided the appropriate mapping from the COVID-19 environment to accounting reports. Second, the financial statement impacts are material, especially for companies with extensive holdings of buildings that are held for use. Third, while the accounting relief was immediate, the economic (cash flow) support does not occur until a year later.

Research limitations/implications

The financial statement impacts are based on a subset of NZX 50 companies with the available information at the time of writing. However, they do not compromise the external validity of the findings because the tax depreciation relief applies to other listed companies, unlisted public and private companies, trust, partnerships and individuals.

Practical implications

The New Zealand Government could have been more helpful to businesses by allowing an immediate depreciation deduction in the 2020 year as opposed to implementing it from 2021. Further, it could have legislated a backlog depreciation deduction from 2010 – when the depreciation on buildings was disallowed – to 2020.

Originality/value

This paper documents the evolution of the accounting for deferred taxes when the New Zealand Government withdrew the tax depreciation in 2010, how NZ IAS 12 evolved as a result of that event and now the reversal effect with the reinstatement of the tax depreciation during COVID-19. The paper also blends in the accounting responses and considers whether they are opportunistic or efficient.

Details

Pacific Accounting Review, vol. 33 no. 5
Type: Research Article
ISSN: 0114-0582

Keywords

Article
Publication date: 1 June 2004

Andrew Baum and Neil Turner

The retention rate of a company has an impact on its earnings and dividend growth. Corporate management has control over this. However, lease structures in some real estate…

2227

Abstract

The retention rate of a company has an impact on its earnings and dividend growth. Corporate management has control over this. However, lease structures in some real estate markets reduce the control of investment managers and force them to adopt full distribution policies and a passive management style. This is likely to impact the rental performance of the real estate by permitting depreciation to go uncorrected. This paper examines several European office markets across which lease structures and retention rates vary. It then compares depreciation rates across these markets. It is concluded that there is evidence of a relationship between retention and depreciation. Markets with particularly inflexible lease structures clearly exhibit low retention rates, and we can tentatively suggest higher levels of rental value depreciation. This poses interesting questions concerning the relationships between lease structures in different markets and their impact on expenditure by owners, and also concerning the impact on building depreciation and property performance. While longer and deeper datasets are necessary to establish direct linkages between lease structures and performance, this paper raises important issues for global investors.

Details

Journal of Property Investment & Finance, vol. 22 no. 3
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 1 December 1994

Owen Connellan

When valuing “no market” properties using the cost approach, one of thefundamental problems is the reflection of “age‐related” depreciation inthe appraisal process. The uncritical…

Abstract

When valuing “no market” properties using the cost approach, one of the fundamental problems is the reflection of “age‐related” depreciation in the appraisal process. The uncritical use of straight‐line depreciation produces illogical results and a new methodology “discounted assets rent” (DAR) is introduced to overcome these difficulties: site values based on existing use should not be depreciated per se in the process. A new software program (DAR) has incorporated these facilities as a “user‐friendly” valuation tool.

Details

Journal of Property Valuation and Investment, vol. 12 no. 4
Type: Research Article
ISSN: 0960-2712

Keywords

Article
Publication date: 1 June 2001

Debra Adams

This article considers the recent release of Accounting Standard FRS15 Accounting for Tangible Fixed Assets and reviews the impact of the standard on the hotel industry where…

1509

Abstract

This article considers the recent release of Accounting Standard FRS15 Accounting for Tangible Fixed Assets and reviews the impact of the standard on the hotel industry where previously hotel companies were able to avoid charging depreciation on buildings. The work of the British Association of Hospitality Accountants, in particular the Guidance Notes for the Hotel Industry on Tangible Fixed Assets, is considered in detail and from this the implications for the industry are reviewed.

Details

International Journal of Contemporary Hospitality Management, vol. 13 no. 3
Type: Research Article
ISSN: 0959-6119

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Article
Publication date: 27 June 2008

John R. Mansfield and James A. Pinder

This paper has three principal aims: to briefly consider the term “depreciation” in the context of property values; to critically review the term “obsolescence” and two of its…

3079

Abstract

Purpose

This paper has three principal aims: to briefly consider the term “depreciation” in the context of property values; to critically review the term “obsolescence” and two of its distinct forms; and to highlight the practical difficulties in pricing obsolescence using inflexible methodologies in a market place that is subject to evolving criteria.

Design/methodology/approach

The paper critically reviews existing literature and advice from international professional bodies.

Findings

The general conclusions are that despite the need to be more explicit in valuations, current methods are unable to address such detail. The guidance and advice offered by professional bodies need to be thoroughly revised. It is hoped that the progress being made in methodology will be incorporated in directed guidance to practitioners.

Originality/value

The paper offers an applied examination of an issue that has an impact on many aspects of contemporary real estate consultancy services.

Details

Property Management, vol. 26 no. 3
Type: Research Article
ISSN: 0263-7472

Keywords

Article
Publication date: 1 December 2005

Richard G. Reed and Sara J. Wilkinson

Purpose — This study seeks to investigate the degree to which energy efficiency is incorporated into office building refurbishment and capital expenditure with the emphasis placed…

2419

Abstract

Purpose — This study seeks to investigate the degree to which energy efficiency is incorporated into office building refurbishment and capital expenditure with the emphasis placed on a cost‐benefit analysis from the owner’s perspective. Design/methodology/approach – In order to develop a research framework, a thorough literature review was conducted of three disciplines being construction technology, building refurbishment and property management. The study identifies differences between varying levels of capital expenditure to ensure an existing building is more energy efficient, with the emphasis placed on the cost of implementation and the potential for tenants to acknowledge the increased energy efficiency via higher rents. Findings – Office buildings have been identified as a contributor to global warming during the construction phase, however during the building lifecycle there is a greater contribution to CO2 omissions. Whilst various building designs and construction techniques have evolved to improve energy efficiency, the focus has largely been placed on new buildings where it is easier to incorporate change and innovative approaches. However, the proportion of new buildings constructed each year is relatively small in comparison to existing building stock, which requires regular capital expenditure to maintain and attract new tenants within a competitive marketplace. Practical implications – The increasing importance of energy efficiency affects the office market in a variety of different ways. Originality/value – This paper identifies important links between the environment and the built environment, and the implications for office building owners.

Details

Journal of Corporate Real Estate, vol. 7 no. 4
Type: Research Article
ISSN: 1463-001X

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Article
Publication date: 1 September 1994

Peter Young

Discusses the valuation “public sector assets” comprising public parks,infrastructural assets (roads, drains, water supply, etc.), hospitals,schools, universities and the like;…

1474

Abstract

Discusses the valuation “public sector assets” comprising public parks, infrastructural assets (roads, drains, water supply, etc.), hospitals, schools, universities and the like; and takes a passing look at the modern public sector accounting practices which appear to create a need for such valuations. The question about Cwhether or not accounting and valuation technicians and definitions which are applied to private sector profit making commercial organizations can be applied to public sector non‐profit making entities is also examined. Since, in most cases, there is no market for such assets does a valuation serve any useful purpose in any accounting, accountability or management framework? Indeed, are the utilities used by public sector organizations strictly “assets” as that term is normally understood? What “bundle of rights” attaches to such public facilities as parks and roads? To the entity responsible for the provision and maintenance of such “assets” are they not more in the nature of liabilities?

Details

Journal of Property Valuation and Investment, vol. 12 no. 3
Type: Research Article
ISSN: 0960-2712

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Article
Publication date: 4 July 2016

James M Williamson and Sarah Stutzman

– The purpose of this paper is to estimate the impact of Internal Revenue Code cost recovery provisions – Section 179 and “bonus depreciation” – on farm capital investment.

Abstract

Purpose

The purpose of this paper is to estimate the impact of Internal Revenue Code cost recovery provisions – Section 179 and “bonus depreciation” – on farm capital investment.

Design/methodology/approach

The authors construct a synthetic panel of data consisting of cohorts of similar farms based on state and production specialization using the USDA’s Agricultural Resource Management Survey for years 1996-2012. Employing panel data methods, the authors are able to control for time-invariant fixed effects, as well as the effects of past investment on current investment.

Findings

The authors estimate statistically significant investment demand elasticities with respect to the Section 179 expensing deduction of between 0.28 and 0.50. A change in bonus depreciation, on average, had little impact on capital investment.

Practical implications

The estimates suggest there is a modest effect of the cost recovery provisions on investment overall, but a stronger effect on farms that have more than $10,000 in gross cash farm income. There are other implications for the agricultural sector: the provisions may encourage technology adoption with its associated benefits, such as reduced cost of production and improved conservation practices. On the other hand, the policy could contribute to the growing concentration in production as large commercial farms expand their operated acreage to take advantage of increasingly efficient physical capital.

Originality/value

To the authors’ knowledge, this is the first research to use a nationally representative dataset to estimate to impact of Section 179 and “bonus depreciationon farm investment. The findings provide evidence of the provisions’ impact on farm capital purchases.

Details

Agricultural Finance Review, vol. 76 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 1 September 1996

James N. Berry and W. Stanley McGreal

Examines the application of taxation breaks in stimulating investment into property development. Examples are drawn from Dublin and Berlin to highlight how accelerated depreciation

4461

Abstract

Examines the application of taxation breaks in stimulating investment into property development. Examples are drawn from Dublin and Berlin to highlight how accelerated depreciation allowances have been utilized in different market sectors. Emphasis is placed on similarities and differences in the regulations regarding use of taxation‐based incentives. Outcomes of the policy are evaluated including the risk of over‐supply of office floorspace in the medium term and the re‐targeting of incentives towards residential development. Argues that the experience drawn from each city provides interesting parallel and contrasting outcomes.

Details

Journal of Property Finance, vol. 7 no. 3
Type: Research Article
ISSN: 0958-868X

Keywords

Article
Publication date: 29 May 2009

John R. Mansfield

In the increasingly hostile operating environment, corporate real estate (CRE) executives are beginning to recognise the importance of sustainability within their freehold…

2158

Abstract

Purpose

In the increasingly hostile operating environment, corporate real estate (CRE) executives are beginning to recognise the importance of sustainability within their freehold property portfolios. To assist in decision‐making, external valuations are regularly commissioned. The purpose of this paper is to examine the practical difficulties associated with incorporating sustainability criteria in the valuation methodology as valuation outcomes inform CRE decision‐making at strategic and tactical levels.

Design/methodology/approach

This paper takes the form of a detailed and critical literature review.

Findings

It is widely acknowledged that sustainability has become a key driver of many business decisions. Corporate entities can achieve a considerable range of tangible and intangible benefits from sustainable real estate in their freehold portfolios. While substantial progress has been made toward understanding the dynamics of the sustainable real estate market, the valuation of such assets is rather hampered by the comparative difficulties in achieving consensus regarding the sustainable criteria and how they should be objectively assessed.

Originality/value

The paper contributes to the broader appreciation of the theoretical and practical difficulties associated with identifying and assessing appropriate sustainable criteria. Importantly, the paper highlights the need for greater understanding of the criteria in the evolving valuation methodology framework.

Details

Journal of Corporate Real Estate, vol. 11 no. 2
Type: Research Article
ISSN: 1463-001X

Keywords

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