Quite a basic question so I won't over complicate.
Preparing first year accounts for a company who buy, renovate and sell houses. Year end is May and within the first year one property was purchased, renovated and sold, therefore property purchase and renovation coats included in COS and the sale recognised as sale of property.
In march another property was purchased with the view of renovating and selling. At the year end not much had been done to it (waiting for planning permission) so just the cost of the purchase and associated legal costs. Now this is the main question, the purchase cost (230k) is currently sat in COS property purchase and I think there should be an element of WIP as currently this results in a massive loss this year and when it's sold next year the accounts will show a massive profit. How do I calculate how much of the 230k is WIP?
Legal costs associated with the property purchase and sale - do they go in COS or legal and professional in admin overheads?
Related resources
Replies (4)
Please login or register to join the discussion.
Thanks. So the 230k property purchase price + 1k renovation costs at year end simply Dr WIP BS, Cr WIP p&L?
As John said
The entirety of the costs for the unsold property at the year end should be appropriated to trading stocks (or WIP) with an adjustment for what you believe is or is not recoverable I.e. Is the property worth the 230k? I am assuming that it is as it has been purchased on an arm's length basis at MV?
The legal costs are also attributable to WIP.