Accounting for preliminary costs

A client of mine has recently changed from managing properties, in their case crematoria, to building and managing the properties.

They have feelers out on about 5 potential sites, with one confirmed and planning permission received.

I am new to the constuction side of things and was looking for some advice on how to account for the various costs.  The main issue being can you capitalise preliminary costs leading up to the submission of a planning application, which can be quite substantial.  Obviously, there is no certainty of success, so prudence would suggest not.  Can they be carried on the balance sheet as WIP and written off if unsuccessful or capitalised if successful.

Any advice would be gratefully received.

Stan O

Comments

capitalise

ryanseligmann | | Permalink

Stan

You need to assess the probability of success in my opinion.  Where you reasonably believe that planning will be granted, then capitalise.

My clients insists on capitalising and then writting off what they refer to as 'dead deal costs' on rejection by planning.

All the best

Ryan

www.selesgroup.com

 

 

Thanks Ryan

Stano119 | | Permalink

Of course my client say that every project has a reasonable chance of success, or the wouldn't be pursuing it! 

Construction Industry

polln | | Permalink

If your client is not already registered for CIS as a contractor then I think, with this change in business activity, you should review their status as to whether they are within the scheme.

Reply

ryanseligmann | | Permalink

Understand, it's the world we live in. Directors sign off the financial statements so ultimately they sign off on it.

Bottom line is that you need to figure out your approach and apply consistently and disclose this policy in the financial statements.

Wishing you all the best

Quick one, what you reading these days. Just finsihed Too big to fail, fantastic read

Ryan

 

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