The master thesis includes an examination of the derivative effects of the Danish Government’s presented amendment of legislative proposal regarding the present rules on taxation on gains from property sales. In contrast to the current legislation, companies which own investment properties are to be taxed on valuation gains that are not yet realized. The thesis examines the consequences of this legislative proposal through a specific case with use of an investment property on Slotshaven 3A-G, 4300 Holbæk. The thesis will include a thorough analysis on what effect the law proposal will have on the company’s liquidity. This includes an investigation on how it too can be affected by uncertainty in the valuation methods.
Firstly, the thesis presents the methodological framework in order to give an understanding of the empirical data that is used throughout the thesis. Furthermore, it presents the choices that have been made to contribute to a precise and accurate investigation of the problem statement which is “Which challenges arise as a consequence of the legislative proposal on taxation of unrealized gains on investment properties for the affected companies, and how will this affect the managerial determination of accounting estimates in relation to the projection of fair value? How will the legislative proposal affect the auditor in relation to the audit of accounting estimates of said investment properties?”
Afterwards, the thesis examines the law proposal in order to map out which companies that ultimately will be affected by it, as well as to understand how said proposal is to be implemented by the affected companies. As the law proposal affects only investment properties the thesis examines the definition of an investment property. Furthermore, it clarifies the definition of fair value and how the affected companies with applicable accounting standards can present investment properties.
Through a specific case the thesis determines a fair value of the property Slotshaven 3A-G located in Holbæk through the utilization of two valuation methods called Discounted Cash Flow (DCF) and return method. The purpose of using these methods is to create an understanding of the underlying data and how the data are determining the fair value, this in order to further understand how changes in these data can affect the valuation of the property. Subsequently, a sensitivity analysis is applied in order to show how a change in the underlying data affects the valuation of the property.
Following the sensitivity analysis, the thesis analyzes how the uncertainties in different valuations when entering the new law proposal can cause different annual tax payments and therefore create different liquidity for the company. By investigating the uncertainty in the valuation methods and the possibility to affect the valuation outcomes, the thesis discusses the managerial considerations and implications the law proposal causes.
When illustrating the uncertainty related to valuing investment properties through the two valuation methods, the thesis seeks to discern whether the managements’ accounting estimates on investment properties influences the audit on the accounting estimates as a consequence of the law proposal or not.