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Break up basis is the assumption for an accountant to prepare financial statements while they cannot use a ‘going concern’ assumption. In essence, if a company is broken up straight away its assets may have less or no value than they would have if the business was to continue.
Take a machine used in a manufacturing process. It may be valuable to a business as an essential part of the manufacturing cycle (a ‘going concern basis’), but if that business is to be liquidated the machine could have little or no value (a ‘break up basis’).
Accountants may be aware that the company will cease its operation shortly after the reporting date. As a result, preparing accounts on a going concern basis is not appropriate when preparing their report.
Break-up value is the value of a company if its components were to be sold or spun off and operated independently. The breakup value is obtained by taking the total assets of each component and deducting the total liabilities.
[See ‘Going Concern Basis’.]
The British Property Federation (BPF) is a not-for-profit membership organisation representing companies involved in property ownership and investment. The BPF works with Government and regulatory bodies to help the real estate industry grow and thrive, to the benefit of its members and the economy as a whole.
The BPF represents landlords and has been prevalent in times of financial difficulty in voicing the concerns of their members about non-payment of rent, changes in the way rent is calculated and paid and the degradation of their industry.
[See ‘Landlords’ and ‘Leases’.]
