Before doing ANYthing else, reset the valve clearances to specifications and check the compression again. You might be lucky, and the low compression is due to a tight valve clearance and nothing else. If proper compression cannot be achieved then here is what you are in for.
First, the cylinder head has to come off. I suspect that this requires the engine out of the bike (and life will be a whole lot easier doing the following work on the bench, even if the head can be done with the engine in-bike). But it's an air-cooled twin. Engine removal should be simple.
If the real problem is a burned valve, then at a minimum, the valve has to be replaced, the valve guide needs to be inspected for wear and repaired/replaced as necessary, the valve seat has to be re-cut and lapped with the new valve then cleaned up, and the valve stem seal has to be replaced. Then put the engine back together with a new head gasket. This is an air-cooled engine with two valves per cylinder ... this job is pretty close to as simple as it gets. But special tools and know-how are needed in order to repair the valve seats.
Once the engine is back together THEN look at the carbs, and it sounds like they need to be re-jetted.
Most common causes of burned valves:
Neglected (out of spec and ignored) valve clearance.
Overheating - air-cooled engines are susceptible to this.
Carbon build-up due to excessive short-trip driving (engine never warms up), excessive use of the choke, excessive rich mixture due to carb issues.
Carbon build-up because the engine is burning oil because of other problems (rings, valve stem seals, crankcase venting issues).
Carburetion set too lean near full-load. Lean idle and cruise won't hurt it (and helps to remove carbon build-up) but lean near full load is bad news.
Wrong oil, neglected oil changes, etc leading to valve stem and valve guide issues.
Thanks Brian for the very detailed post. I have all the tools ready and will be doing a valve adjustment this coming week. I will take pictures once the engine cover is off the bike (gs500's are easy to work on while the engine stays in the bike). I am not too sure what I should be looking at, however I feel certain that my bike is suffering from burnt valves. My valves haven't been adjusted in nearly 20k or more and power has been dropping in my gradually over the past year and a half (top speed of 110-125km/h with no windscreen). I have seriously neglected the needs of my motorcycle and I am being punished .
As honduhmatic says, if I can find an engine on the cheap that is a resort I may have to take. However I feel positive that I will not need to resort to that.
A question? If I have burnt valves does the entire top end of the bike need to be replaced or can I replace the valves individually?