New CSA: impact on revaluation gains
November 2021 – On 20 August 2021, the Accounting Standards Board (CBN/CNC) published an opinion on the accounting for revaluation gains following the introduction in May 2019 of the Companies and Associations Code (WVV/CSA).
Accounting for a revaluation gain
The previous CBN-CNC advice on revaluation gains already dates from 2011 and was updated in 2016. However, the WVV/CSA and the WVV/CSA Implementation Order have changed the rules on revaluation gains. The new CBN-CNC opinion no. 2021/13 sheds light on the accounting treatment of a revaluation gain both for companies with capital (NV/SA, European companies and European cooperative societies) and for companies without capital (BV/SRL and CS/SC).
Among other things, the law allows the recognition of a revaluation surplus on tangible and financial fixed assets when the value of these assets - determined according to their usefulness for the company - "shows a definite and lasting surplus in relation to their book value".
If the assets in question are necessary for the continuation of the company's activity, they may be revalued "only to the extent that the gain expressed is justified by the profitability of the company's activity".
The capital gains recorded are charged directly to item III of the liabilities "revaluation gains" and are maintained there as long as the assets to which they relate are not realised.
However, capital gains may be transferred to a reserve up to the amount of the depreciation recorded on the capital gain and, in the event of a subsequent loss of value, be cancelled up to the amount not yet depreciated on the capital gain.
Companies with capital
The WVV/CSA allows companies with capital to incorporate revaluation surpluses into capital up to the amount of the part of the revaluation surplus less the estimated taxes on this surplus. This is a contribution.
The former legislation did not provide for the possibility of a capital reduction after this contribution, either by repayment to the shareholders or by settlement of losses. In 2015, a Royal Decree excluded this possibility.
The WVV/CSA now provides explicit rules for distributions to shareholders of companies with capital: the capital may not be reduced to an amount lower than :
the minimum capital ;
increased by the amount of the incorporated revaluation surplus; and
reduced (if applicable) by the amount of the gain realised in the interim from the disposal of the asset concerned.
The technique of incorporating a revaluation surplus into the capital and subsequently using it to reduce the capital by clearing losses is now also prohibited by the WVV/CSA itself.
Example
The CBN/CNC gives the following example:
a public limited company has a share capital of 115 000 euros;
A revaluation gain of 33 750 euros (after tax) is incorporated into the capital;
The company then wants to reduce its capital by 60 000 euros to cover a loss carried forward of 100 000 euros.
If the company were to carry out this capital reduction, its capital would still amount to 88 750 euros. According to the WVV/CSA, this amount cannot be less than the minimum capital of an NV/SA (61 500 euros) plus the revaluation surplus incorporated into the capital (33 750 euros), i.e. 95 250 euros. Therefore, the company cannot proceed with the transaction.
The prohibition on distribution, previously included in the Royal Decree, is now also included in the law: the unamortised part of the revaluation surplus is treated as "a legally unavailable reserve".
In other words: the undepreciated part of the revaluation surplus cannot be made available for future distribution. It is not possible to derogate from this assimilation by a statutory provision.
Companies without capital
A revaluation surplus cannot therefore be incorporated into the capital with a view to a subsequent capital reduction, distribution or cancellation of previous losses. But what about companies without share capital, such as BV/SRL?
The CBN/CNC considers that it is not impossible to incorporate a revaluation surplus into the contribution, notwithstanding the absence of any explicit provision on this subject in the WVV/CSA. The Commission actually reverses the reasoning: neither the law nor the explanatory memorandum prohibits the incorporation of a revaluation surplus into the contribution.
The CBN/CNC deduces that an analogy can be drawn with companies with capital: the incorporation of a revaluation surplus into the contribution must be recorded under account 1119 ("Other unavailable contribution outside capital") and the undepreciated part of the revaluation surplus cannot in any case be made available by a transfer to account 1109 ("Other available contribution outside capital").
The BV/SRL which, prior to the entry into force of the WVV/CSA, had already capitalised revaluation surpluses must also recognise these revaluation surpluses (at least the unamortised part of these revaluation surpluses) under account 1119 "Other unavailable non-capital contribution".
