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movement of build costs to investment properties

at what value do you mve costs out of the p&L for building investment properties

A company has built some flats, some they have sold and some they haven't they have rented these out.

The ones they are renting out we are moving into investment properties.

Under FRS102 i was going to do the follow enteries i would just like clarification that this is correct:

Credit cost of sales for the build costs

Debit investment properties

Then revalue the properties at fair value and either debit or credit investment properties and revaluation account in the p&l

Thanks

 

 

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By DJKL
30th Jan 2019 00:04

What are you doing about tax, you are appropriating from stock by the sound of it with the possibility of creating a taxable profit as market value surely applies for tax purposes ?

Re the accounts entries I think booking out of stock at its carrying figure (presumably lower of cost and NRV) sounds appropriate as stage one.

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to DJKL
30th Jan 2019 08:39

In my training firm, we had a property developer ltd who for some reason couldn’t sell any of his properties in 2008. Rather than move them to investment properties, rent them out and get the tax charge, the partner suggested leaving them in stock as clearly the developer wanted to sell them, but let them out in the short-term whilst he continued to market them and so leaving them as stock.

I could see his logical, but didn’t pass the sniff test!

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By DJKL
to atleastisoundknowledgable...
30th Jan 2019 09:58

Rugby Estates , who years ago I held shares in ,often carried
a lot of property in stock , it is not uncommon and could endure for a few years. I do not see a problem with it, the primary intent is to sell, holding and getting some rent is merely an interim step in the process.

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to DJKL
30th Jan 2019 10:43

I have done similar.

We had a client buying show homes (some developers sell them off fairly cheap to get capital in early on in the site development, and then rent them back), with the express intention of flipping them at the end of the period.

Trading stock, not rental.

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30th Jan 2019 09:04

Watch the VAT issues.

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30th Jan 2019 18:45

Thank you

Client isn't marketing them for sale so I don't think I can hold them in stock.

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