Silic HBS case study
Silic Case Report
Title of case analysis: Case Silic
Date: 2013/11/17
Summary:
The Council of Ministers of the European Union approved regulation on applying IFRS for all companies, so Silic, a France-based investment property company, also faces the substantial impact on their accounting standards, needs to choose between historical-cost or fair-value accounting to report its investment properties according to IAS 40.
Silic was a major and historical player on the French commercial-property market. It had over 700 individual tenants, ranging from small and medium-sized companies to major multinationals in Paris and surrounding areas. Additionally, Silic had a largely institutional and relatively stable shareholders community. At December 31, 2004, Silic had over 1.5 billion euro of investment properties, including building at over 1.1 billion and land at close to 449 million, the company was also constructing new office buildings at 62 million.
Since 2001, France represented Europe’s third largest real estate management and development industry, generating 19.9% of the European industry’s value. And Paris represented the largest commercial real estate market in Europe. By the end of 2004, a cusp of an upswing with sales prices rising on the year by 1.5% appeared in commercial property market.
Before introduction of IFRS in france, Silic reported its property assets with the French general accounting plan at historical cost. The depreciation of its office and light industrial buildings on a straight-line basis with average period of 40 years. In year 2003, Silic adopted SIIC status. Within SIIC, Silic had a tax exemptions of at least 85% of rental earning and 50% of capital gains to shareholders. Furthermore, the revaluation of buildings gives a 70% value increase of company’s investment properties. But Silic needs to pay an “exit tax” which is 16.5% of latent capital gains on the buildings. In the face of implementation of IFRS, Silic faced important
Title of case analysis: Case Silic
Date: 2013/11/17
Summary:
The Council of Ministers of the European Union approved regulation on applying IFRS for all companies, so Silic, a France-based investment property company, also faces the substantial impact on their accounting standards, needs to choose between historical-cost or fair-value accounting to report its investment properties according to IAS 40.
Silic was a major and historical player on the French commercial-property market. It had over 700 individual tenants, ranging from small and medium-sized companies to major multinationals in Paris and surrounding areas. Additionally, Silic had a largely institutional and relatively stable shareholders community. At December 31, 2004, Silic had over 1.5 billion euro of investment properties, including building at over 1.1 billion and land at close to 449 million, the company was also constructing new office buildings at 62 million.
Since 2001, France represented Europe’s third largest real estate management and development industry, generating 19.9% of the European industry’s value. And Paris represented the largest commercial real estate market in Europe. By the end of 2004, a cusp of an upswing with sales prices rising on the year by 1.5% appeared in commercial property market.
Before introduction of IFRS in france, Silic reported its property assets with the French general accounting plan at historical cost. The depreciation of its office and light industrial buildings on a straight-line basis with average period of 40 years. In year 2003, Silic adopted SIIC status. Within SIIC, Silic had a tax exemptions of at least 85% of rental earning and 50% of capital gains to shareholders. Furthermore, the revaluation of buildings gives a 70% value increase of company’s investment properties. But Silic needs to pay an “exit tax” which is 16.5% of latent capital gains on the buildings. In the face of implementation of IFRS, Silic faced important