GREIT12115 – Group conditions and rules: Financial Statements: G (property rental business) and G (residual): general principles

The financial statements for G (property rental business) and G (residual) cover the activities of all members of the group, wherever they are resident and regardless of the location of their business activities. They are drawn up by reference to the accounting period of the principal company of the group.

The two statements also reflect the contributions to the group of a number of other entities in which members of the group may have an interest, such as companies owned less than 75%, joint ventures, partnerships and unit trusts (see GREIT12120).

The principal company must provide a reconciliation between the financial statements for G (property rental business) and G (residual) and the audited accounts of the group (regulation 5(4) SI 2006/2865). This is to ensure that all the activities of the group are accounted for, either in one or other of the finanancial statements or in the reconciliation to the group’s accounts. For example, property revaluations will appear only in the latter. There is no requirement for the two financial statements to be audited.

Although the two financial statements are similar in concept to group consolidated accounts, in drawing them up, the principal company does not have to start with the group accounts and then deconstruct them to give the appropriate figures. If they prefer, they may start with the accounts of each of the group members and build them up to provide the figures. Where group members are using UK GAAP (or other overseas GAAPs) rather than IAS, the former may be more straightforward.

Use of International Accounting Standards (IAS)

The financial statements for G (property rental business) and G (residual) are drawn up using IAS to measure income, expenses and valuations (paragraph 31(3) Schedule 17 FA 2006). If IAS allows a choice in methods of valuation, fair value must be used. Note that the value of an asset is determined without reference to any liabilities, charges etc relating to it.

Financing costs - amounts to be shown separately

As part of the process for deciding if the interest cover test is met, the financial statements for G (property rental business) and G (residual) have to show financing costs separately from all other expenses (regulation 5(5) SI 2006/2865). 'Financing costs' are defined in section 115(4) FA 2006 and include finance leasing costs as well as interest – see [xref] for more detail.

Regulation 6 SI 2006/2865 sets out the steps that need to be taken to work out Financing Costs (External) from the financial statements for G (property rental business) and for G (residual) (see GREIT12155). This figure is needed to work out whether the group meets the interest cover test in section 115, as modified for groups by paragraph 14 Schedule 17 FA 2006.