PROPERTY ASSET VALUATION IN SINGAPORE

Abstract

The historical cost accounting convention has been used as the basis for preparing accounts because of its underlying simplicity and certainty. However, it contains the inherent inadequacy that changes in price level over a period of years vrould result in accounts that do not reflect current conditions. Despite low inflationary rates in Singapore, property prices have fluctuated substantiallv over the last decade. This creates a discrepancy between the current value and the historical cost of property over time. The wide difference between the current value and historical cost prompted the author to study the different approaches of the accountants and the valuers towards property values and depreciation and possible means of minimising the differences between the current and the book value. I The historical cost approach of the accountant is significantly different from the valuer's current value approach because of the differing conventions of each profession. Whilst all conventions are artificial, the two professions need to be aware of the artificiality of the conventions necessarily adopted by each other. Studies have shown that in sane instances the historical cost of properties is more than ten times the book value. This has inhibited the use of financial statement as a potential tool in making the right decision. In view of the many limitations of historical cost of property asset and the objective of preparing financial statements, it is desirable to update the historical value. This would provide more useful and realistic information to the many and varied lasers of accounts. I Property asset is only one of the assets of companies. In order to provide all the information that investors or users need, it is essential that improvements should be carried out continuously.