UK Impairment under FRS 102- effect on value of fixed tangible assets?

[AnAspiringAccountant]

This one will probably be nice and easy for the experienced accountants on here- I however am not one.

If an asset impaired- say a football stadium, and I've touched upon this elsewhere but it intrigues me, but impaired on relegation and a takeover- does that broadly reflect the fair market value for the foreseeable?

Aston Villa on relegation impaired Villa Park to the tune of £44,593,000- this was in 2015/16 and also in the midst of or ahead of a takeover. I think that one of the reasons for the Impairment was to make it easier to sell, the club I mean. The owner got £30m in addition to the original £60m sale price once they were promoted back to the PL in May 2019.

I was always under the impression that once an asset impaired, ie written down, that it would broadly reflect the Fair Value or Value In Use- whichever of these was greater and this would be the Recoverable value.

Figures:

Sometime in 2015/16, this was Impaired.

£106,763,000 at 1st June 2015.

Depreciation:

Accumulated- £21,476,000
Annual Charge for the Year- £1,817,000

Impairment:

£44,593,000

The new net book value is/was £39,180,000 as of 31 May 2016.

Included within the above- ie the Freehold Land and Buildings- was Freehold land that was non-depreciable presumably, certainly did not depreciate but to the tune of £7,931,526- as it was the prior season.

If we include that land within the value of Villa Park then it's £39,180,000 post impairment, if we don't then it'd be £31,248,474.

Presumably the relegation will have had an effect, but it still seems fairly unorthodox? I'd argue it's up for debate as to whether a relegation would affect remaining worth that drastically!

Yet, in May 2019- a few days before promotion, the ground was sold to their owners or a company controlled by their owners- actually it was an existing company within the group structure for £56.7m! Bit interesting?? Profit on remaining book value around £28-28.5m- if valued at say Depreciated Replacement Cost then I struggle to see it!

Depreciated by a further £1,454,000 in 2016/17- no additions.
Made Additions of £2,533,000 in 2017/18- but also seemed to dispose of Land worth £1,505,000- that would be linked to the HS2 compensation.
The Remaining Additions are or were equal exactly to the increase in the non-depreciable Freehold Land- £1,028,000.
Annual Depreciation Charge was £1,446,000 but £174,000 was eliminated on disposals.

I suppose my question then is, how do you write back on that much Impairment based on what was a 50/50 chance of promotion- ie a playoff final v Derby!

How do we justify it?

EDIT: Was also worth nothing that on acquisition by Lerner in 2006/07 there was a fair value adjustment upwards, but none by Xia in 2015/16 or 2016/17.

 

[Fidget]

Have you got any links to the accounts that you're talking about? It's often the notes to them that provide the explanation, or at least the basis to go on, rather just raw numbers. Can have a look at them with you.

 

[AnAspiringAccountant]

Thanks for that- I'll get onto that later- but an important update to another thread to make first.

 

[AnAspiringAccountant]

Thank you- will link to the accounts now.

The name has changed a lot in the last few years so maybe tricky to keep up with it- I know I found it a bit!

How far back do you want to go with it? Regardless, it's the accounts from 2016.

NSWE SPORTS LIMITED filing history - Find and update company information - GOV.UK

NSWE SPORTS LIMITED - Free company information from Companies House including registered office address, filing history, accounts, annual return, officers, charges, business activity

beta.companieshouse.gov.uk

2016 accounts seem a reasonable starting point but then Villa Park did get revalued in 2007 on acquisition by Randy Lerner. When there was a readjustment from Book Value when acquired to Provisional Fair Value. Villa Park impairment appears to be under "Freehold Land and buildings".

The other thing I'm always a bit sketchy on "Freehold Land and buildings includes freehold land amounting to £x which has not been depreciated".

In this case it's £7,931,526- but whatever the amount, always unsure how to account for it in sale. Likely there would be other land and buildings included in that listing at cost.

The other interesting thing is that when they sold the ground they seemed to sell it to another company already existing within the group. Tax implications? Maybe. Profit to offset losses though? Sketchy surely!

One problem at a time though eh.

EDIT: The ultimate parent company at that time was in USA or China- might that have had an impact on disclosure for impairment?

Because though it seems to be the ground, there seems to be precious little explanation or context in the accounts from that season.

 

[AnAspiringAccountant]

Decided to revisit it for one or two reasons.

Villa Park is included within Tangible Assets and in turn, it is/would be under Freehold Land and Buildings.

The Recoverable Amount is below £50m do we think- possibly lower still?

Only real reason I ask is that Villa Park in May 2019, sold for £56.7m in a sale to a commonly owned company. Yet I was under the impression that Impairment=Recoverable Amount. Recoverable Amount=Greater of Fair Value or Value in Use.

 

[Fidget]

Impairment can be reversed if whatever caused it doesn't apply anymore. So if the ground was impaired because of relegation in 2016, then that factor doesn't apply anymore from the end of season in May 2019 because they went back into the premier league.

If that's the case then the 2019 accounts should show the reversal of the impairment. They're not due out til the end of Feb as far I can see.

 

[AnAspiringAccountant]

Thanks, yeah.

I've read bits about Reversal of Impairment online- it seems pretty unorthodox let's say, as most clubs relegated don't see huge swings in asset value, certainly not fixed assets- for comparison sake, Stoke Impaired their ground by less than ...for FFP and vs technical accounting regs as such, the criteria may diverge a little- those accounts would be interesting! This was a downward revaluation though rather than a specific Impairment...

I wonder if the EFL will look to challenge this on the return of Aston Villa- you have to be able to justify Impairment and indeed reversal but so far, there has been no justification of the former.

Could be the case that an EFL commissioned Independent valuer adjusts things even if the accounts don't need restatement? Pride Park was sold after an apparent independent valuation for £81.1m but the EFL commissioned one had it at £49m, £50m, something like that- yet they probably won't need to restate their accounts.

 

[AnAspiringAccountant]

Sorry yeah, the Stoke bit- there was a swing of less than 5% and that maybe was a downward revaluation rather than Impairment.

Villa Park is one I really cannot work out...they might still have trouble justifying it for FFP purposes! From what I've seen albeit nothing for a month or so, the PL have not yet signed it off/approved it and if it's not approved by the PL, that could leave them wide open for a points deduction as per the regulations- question is in that scenario whether it would it be THIS season in the PL or an old case investigated as per Man City as new evidence has come to light. Plus Derby and Sheffield Wednesday...

I doubt this is the end of the FFP story for Aston Villa but their accounts may reveal compliance in another way.

 

[AnAspiringAccountant]

Interesting note just saw on Twitter.

https://twitter.com/i/web/status/1232999149571858432

The company who purchased the stadium, NSWE Stadium Limited. Formerly part of the group until mid May last year to be directly owned by the owners, have pushed their reporting date back by a day- which means that they don't need to submit accounts until the end of May.

Makes me wonder if everything is on the level there, at least with respect to this transaction and compliance with FFP!

 

[AnAspiringAccountant]

Aston Villa have declared they complied- their full accounts aren't out yet however, so it's still hard to say.

Who knows whether further and in depth investigation would imply otherwise? Seems Aston Villa Limited owned Villa Park but there are some odd swings in value there, swings that are not reflected in the group/consolidated accounts.

A number of the companies often changed their name too, in that few year period under the same owner. I know it's the company number that counts but that's still a bit curious.

 

[Fidget]

In the words of Lewis Carroll: "Curiouser and curisouser". All seems a bit shady, yet at the same time, seems like it's the norm in the football world.

 

[AnAspiringAccountant]

Football appears to be a bit of a treasure trove for interesting accounting practices!

My posts aside, it's an interesting research area subject IMO. Nonetheless I do believe that if the Impairments, the valuations, the swings in value or the profit cannot be justified in accounting and valuation standards terms, that there would be grounds to reopen the investigation into Aston Villa- not that it's actually officially been closed actually!

Derby declared they had complied last September not long after the EFL commissioned an independent valuation into Pride Park...that didn't save them from being found in breach and referred to an Independent Disciplinary Commission.

In 2014, QPR got promoted back to the PL under the old rules. Despite losing £30-40m in PL in 2012/13, they reported 'only' a loss of £9.8m in their 2013/14 promotion season- amazing sales and wage cutting- going back up with such a cut cost base, wow- how do you lose that PL revenue and yet cut costs by £20-30m over and above that, while still gaining promotion ie remaining competitive on the pitch- must be a miracle...

...Except it wasn't- as £60m of that was down to an exceptional item, ie cancellation of debt- clearly not compatible with FFP and there was wrangling between the EFL and QPR for years!

There is also the question of what was in Aston Villa's Projected accounts as Championship and PL clubs submit Projected Accounts for the existing season- wonder if the ground sale was in these? If not that's another line of inquiry for the PL/EFL.

Am assuming QPR told the EFL- there weren't really Projected Accounts for FFP 6 or 7 years ago, that they lost £9.8m, or put it in writing or I don't know how it would work- but there were strong suspicions and then when their real accounts came out in March 2014 these were confirmed!

EDIT- You might like these articles on it from around the time.

QPR figures not all they seem

www.financialfairplay.co.uk

QPR's accounts released and heading for £50m fine

www.financialfairplay.co.uk

 

[AnAspiringAccountant]

Well their accounts are out.

Couple of interesting notes on the ground thing.

£56.7m price paid- yet all under "Other Loans Receivable"- banked the profit last season though in the P&L.

How they came to that price and profit is also curious.

Will post some attachments later.

 

[AnAspiringAccountant]

Those said attachments.


I have my scepticism as to whether FFP should just clear this.