No. A company using the micro entity regime must carry all property, including investment property, at cost less accumulated depreciation and impairment, because company law switches off the valuation and fair value rules for micro entities. A company that already has a revaluation or fair value on its balance sheet must reverse it back to depreciated cost when it moves to FRS 105, with the adjustment taken to reserves at the date of transition.

Why can a micro entity not show property at valuation?

The prohibition comes from the law, not just the accounting standard. Schedule 1 to the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008 contains the alternative accounting rules in Part 2 Section C, which allow tangible fixed assets to be included at market value or current cost (paragraph 32), and the fair value accounting rules in Section D. Regulation 3(1A) of those Regulations says Sections C and D do not apply to a company that qualifies as a micro entity and prepares its accounts using the micro entity exemptions.

FRS 105 follows this. Paragraph 15 of its basis for conclusions explains that micro entities are not permitted to revalue or subsequently measure assets or liabilities at fair value, and that this affects in particular financial instruments and investment property, which must be measured at cost and depreciated cost respectively. Paragraph 2.38 measures property, plant and equipment and investment property at cost less accumulated depreciation and impairment losses, and paragraph 12.14 applies that to all items after initial recognition.

Does this apply to investment property as well as offices and shops?

Yes, and this is where the rule bites hardest. Under FRS 102 paragraph 16.7 investment property is measured at fair value at each reporting date with changes through profit or loss, and under paragraph 17.15 a company can choose the revaluation model for a class of property, plant and equipment. Under FRS 105 there is no such choice: a buy to let flat, a let warehouse and a company’s own office are all held at cost less depreciation.

That means a micro entity depreciates the buildings element of an investment property. FRS 105 paragraph 12.15 requires major components with significantly different patterns of use to be depreciated separately over their useful lives, and notes that the site itself generally has an unlimited useful life and is not usually depreciated. The cost of the site must therefore be separated from the cost of the building. Share investments follow the same logic: paragraph 9.8(a) measures them at cost less impairment.

Can the value still go down?

Yes. Cost is a ceiling, not a floor. FRS 105 paragraph 22.2 requires the carrying amount of an asset to be reduced to its recoverable amount if, and only if, that amount is lower. Paragraph 2.40 explains that measuring assets below historical cost ensures they are not carried above what the micro entity expects to recover from sale or use. A fall in the value of a property is therefore recognised as an impairment loss, while a rise is ignored until the property is sold.

What happens to an existing revaluation when a company moves to FRS 105?

A company that has been using FRS 102 and qualifies for the micro entity regime applies Section 28 of FRS 105 in its first micro entity accounts. Paragraph 28.7(d) requires every recognised asset to be measured under FRS 105 in the opening balance sheet at the date of transition, which is the start of the comparative period (paragraph 28.6). Paragraph 28.8 requires the resulting adjustments to be recognised directly in equity reserves at that date.

Unlike FRS 102, FRS 105 offers no relief allowing an old valuation to be kept as deemed cost. Paragraph 23 of the basis for conclusions says this would be inconsistent with the legal framework, which requires fixed assets to be initially recognised at purchase price or production cost.

There is one practical concession for investment property. A property held at fair value under FRS 102 will often have had no depreciation charged and may have had components replaced over the years. Paragraph 28.10(c) lets a first time adopter avoid working out the depreciated cost of each component retrospectively. Instead it:

  1. determines the total cost of the property, which where no depreciation was charged can be found by reversing revaluation gains or losses previously recognised in equity reserves;
  2. separates the cost of the site from the buildings;
  3. estimates accumulated depreciation since acquisition based on the useful life of the most significant component, such as the main structure;
  4. allocates part of the resulting depreciated cost to the other major components on a reasonable and consistent basis, with the rest going to the main structure.

Paragraph 28.12 allows the company to keep using the exemption in later years until the property is derecognised.

Worked example

Illustration only. A company bought a let property on 1 April 2016 for £300,000, of which £100,000 related to the site and £200,000 to the building. Under FRS 102 it carried the property at fair value, most recently £450,000, and charged no depreciation. Its first FRS 105 accounts are for the year to 31 March 2027, so its date of transition is 1 April 2025.

Step Amount
Fair value under FRS 102 at 1 April 2025 £450,000
Reverse cumulative fair value gains (£150,000)
Cost £300,000
Depreciation on building: £200,000 over 50 years for 9 years (£36,000)
Depreciated cost at 1 April 2025 £264,000

The £186,000 reduction goes to equity reserves at the transition date. Any deferred tax liability previously recognised on the fair value gains is also removed through reserves, because FRS 105 paragraph 24.7 prohibits deferred tax (see why micro entities do not show deferred tax). The comparative year is restated with a £4,000 depreciation charge, and the same charge continues each year.

Can the market value be mentioned in the accounts?

FRS 105 paragraph 1.3 permits a micro entity to include information beyond the minimum accounting items, and section 393(1A)(c) of the Companies Act 2006 requires the directors to have regard to accounting standards for any such item. A note giving a property’s market value is additional information of this kind; it does not change the amount on the balance sheet, which must remain at depreciated cost. Directors adding such a note should bear in mind that it is then held to the standards of FRS 102 Section 1A.

Does any of this affect tax?

The accounting choice does not change the corporation tax computation for a property. Depreciation charged in the accounts is not normally deductible for tax (HMRC Capital Allowances Manual CA10020), so the new depreciation charge on the building under FRS 105 does not reduce the company’s taxable profits.

When is FRS 105 the wrong choice for a property company?

The FRC acknowledged the trade off. Paragraph 25 of the basis for conclusions notes that the micro entities regime is optional, and that a micro entity wanting to keep revalued amounts could apply the small companies regime instead, which means FRS 102 with Section 1A. A company that relies on its balance sheet to show lenders or investors what its property is worth, or whose loan covenants refer to net assets, will often be better served by FRS 102. The comparison is set out in choosing between FRS 105 and FRS 102 Section 1A, and the FRS 102 mechanics in revaluing fixed assets and the revaluation reserve. If the company later returns to FRS 102, investment property goes back to fair value and other property can be measured at its fair value at the transition date as deemed cost (FRS 102 paragraph 35.10(c)), as explained in moving from FRS 105 to FRS 102.

What mistakes come up most often?

  • Carrying a revaluation reserve forward into micro entity accounts.
  • Not depreciating an investment property building because it was never depreciated under FRS 102.
  • Depreciating the whole cost, including the site.
  • Taking the transition adjustment through the profit and loss account instead of equity reserves.
  • Ignoring an impairment because the property is held at cost.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.