Journals for a transfer from Stock to fixed assets

as above

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This is the first time I have had to deal with a transfer of property from trading stock and so am just looking for confirmation

Basically,the directors have decided that one of the properties they have  recently bought and renovated will produce a very high rental return.  Accordingly they are now going to keep it and so it needs to be transferred out of WIP/Stock at cost and into into fixed assets at MV. 

Would the journals be

DB Fixed Assets with MV of property

Cr WIP/Stock the costs of purchase/renovation

Cr sales with the uplift from costs to MV

Its just that this is the only "sale" in the period and we are going to have  income but no costs of sale, which looks a little strange.

 

Thanks

Andy

 

 

 

teh rentalincome fromtrhis property gener

Replies (11)

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John Toon
By John Toon
03rd Dec 2021 09:53

I think you've short cut the journals. In sales you'll recognise the MV of the property transferred so DR FA and CR Sales and in COS you'll recognise the cost of the stock/WIP to date DR COS CR Stock/WIP. So you will have a gross profit.

You should be aware that this would give rise to a tax liability if a profit is made.

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Replying to johnt27:
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By paul.benny
03rd Dec 2021 09:56

John - Did you misread the OP? The property has been retained by the company, so surely that doesn't create revenue.

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Replying to paul.benny:
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By Piltdown Man
03rd Dec 2021 10:23

paul.benny wrote:

John - Did you misread the OP? The property has been retained by the company, so surely that doesn't create revenue.

There is no receipt from a third party, but a tax charge arises if MV is greater than cost. On the upside, capital allowances may be available.

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Replying to Piltdown Man:
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By Tax Dragon
03rd Dec 2021 11:04

Ignore me.

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Replying to paul.benny:
John Toon
By John Toon
03rd Dec 2021 11:40

The friday morning brain fog has lifted! You're right - not revenue...

Uplift does hit P&L, is taxable, but I wouldn't agree it sits in reval reserve as technically it's a FV reserve (non-distributable part of retained profit) as this would now be an investment property not PPE

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Replying to johnt27:
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By paul.benny
03rd Dec 2021 12:28

Phew. I was slightly worried for a moment that I'd totally missed something basic.

Tax on the gain is (only) deferred tax, though, not cash tax payable. Isn't it?

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Replying to paul.benny:
John Toon
By John Toon
03rd Dec 2021 13:03

In this instance it's real tax hence why it's quite unusual to see this in real life. Deferred tax would arise on future FV adjustments as would be the norm

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Replying to johnt27:
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By paul.benny
03rd Dec 2021 16:15

I've learnt something here - thank you.
It's somewhat counter-intuitive that capitalising stock would result in a tax charge, although I guess a fairly niche scenario.

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By paul.benny
03rd Dec 2021 09:53

No.
Transfer of asset from inventory to fixed assets doesn't create revenue.

You need to move asset at cost and then revalue. The credit goes to revaluation reserve.

If the property is being held for its rental income, it's an investment property. If you're reporting under FRS102, you will need to revalue annually

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By Paul Crowley
03rd Dec 2021 10:43

If the company has accountants then let them decide
Assumed this is usually a property development company, not a letting company
If so then no reason why the stock of buidings cannot just be left the way it usually would be
Very common to let a property for a while, looking for best time to sell

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By Andywho is fed up
03rd Dec 2021 12:12

Thank you all for your replies. Paul Benny's reply at 9.53 predates some of the earlier replies in the list, which confused me somewhat before I spotted that one. I am the accountant but have only the one property development company and so this transaction is new to me - hence the query.

Directors want the asset as a FA so that's the way we'll go. There are trading losses brought forward so I can't see why they won't be available and the uplift is only about 20K or so anyway.
Andy

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