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fixed assets or stock

exchanged properties

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My ltd client flips properties. That is to say that they exchange to buy either i) a property or ii) some land, then a) do a small amount of work on the property or b) get planning permission for the land, then do a back2back purchase & sale completion. Land exchange is dependant on planning.

YE situations that I need opinions as to my treatment under are:

1. land that has been 'purchase' exchanged (purchase deposit paid), legal fees spent awaiting planning permission = stock?

2. property that had had been 'purchase' exchanged (purchase deposit paid), had work done on it = FA, showing the balance on completion as an accrual?

I'm planning to report under FRS105, how would comments change if I reported under FRS102s1A?

Thanks

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By johnt27
19th Nov 2019 17:11

All stock/WIP irrespective of the reporting framework.

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By ireallyshouldknowthisbut
19th Nov 2019 17:18

If you buy it to sell it, its stock not fixed assets.

The more interesting question you have here is if there is a subsale and (momentary) title is contingent on planning. Id be inclined to book the costs to date (eg planning fees) as stock, and write off if the deal falls flat. You might be able to argue the planning fees are a P&L item. I think it depends on how speculative the planning is. Eg i they are doing 20 a year with an expectation of 40% going through, I would probably book the planning as a cost. If its one or two a year, and most going to happen, to stock under the matching rules.

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By atleastisoundknowledgable...
19th Nov 2019 17:37

Thanks both - stock all the way it is.
:)

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By Mr_awol
20th Nov 2019 12:08

Agree it's stock - and can remain so even if rented for a short period prior to sale.

Make sure you've warned the client (in writing preferably) of the implications if they change their mind though. Capitalisation at market value with corresponding tax liability (but no proceeds) tends to make them grumpy. It also tends to lead to backtracking and them stating that their intention was 'always to keep this one' with a request that you amend the last 2-3 years accordingly (can you spot the bitter experience here?).

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