Decent recipes for concrete, glass and steel may not spring instantly to mind but Fairwood Holdings and accountants KPMG Peat Marwick have agreed that buying and selling properties are integral to the business of running fast food restaurants.
Fairwood, which runs chains of restaurants including the Mario pizza parlours, is the latest Hong Kong listed firm to switch accounting policies in reaction to Statement of Standard Accounting Practice 17 introduced last July relating to how fixed assets are valued.
Firms may either hold the assets at historical cost minus depreciation or they may revalue the assets every year and transfer changes to the revaluation reserve without passing the change through the profit and loss account.
Under the old treatment, profits from properties or other assets which had been revalued and subsequently sold could be put through the profit and loss account.
A restaurant bought for $10 million, valued in the balance sheet at $70 million and sold at $50 million would be booked as an exceptional profit item of $40 million despite being sold for less than the valuation.
Under the new treatment, firms must choose either to hold at cost and book profits when assets are sold or to regularly revalue assets and transfer changes in valuation straight to the reserves.
