property development business - apportionment of costs

property development business - apportionment...

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A property development business has purchased a house which has subsequently been converted into flats for sale.

The sale of the two flats took place either side of a year end so I was proposing to carry the costs relating to the second flat forward as work in progress at the year end, splitting the original purchase price and the unidentifiable costs of the building works between the two flats in proportion to the final selling price as this seems to me to be a fair and reasonable method.

There was no contract for sale of the second flat at the year end, so I don’t think that UITF 40 has any impact.

As the properties were sold either side of a year end, my client is keen to bring all of the expenditure into the first period, with no WIP, greatly reducing the profit.

Any advice please?

wotshisname

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By geoffwolf
03rd Dec 2007 18:13

DAFT CLIENT
your client is clearly mistaken and you would need to explain to him the
concept of stock in trade.

your suggested method of apportionment has merit . If the development was complete at the first accounting date I suspect that a more rational apportionment of any unidentifiable building costs would be on a split of square footage. The ultimate realisable value is not likely to be a proper measure to use.

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