UK Accounting for property development company

[Fox22]

Can anybody help.

This is a property development company who does their own bookkeeping.

They have purchased the property which was sent to the asset account.

They have now sold the property at a profit and the funds are now in the bank account and they have sent this to sales.

Obviously the disposal needs to be recorded but how is the purchase price shown as a cost.

 

[Praz Finpoint]

Hmmm.......when the property was original purchased, it will be recorded as an Asset (Property, Plant and Equipment or Inventories, depending on the Business Model) on the Balance Sheet, and this Asset is recorded at the Cost of Purchase.

When the Asset is sold, you will de-recognize the Asset from the Balance Sheet accordingly.

 

[StanleyR1]

If this is a non-standard transaction for the company, then

• Dr Cash
• Cr Property (asset)
• Cr Gain on Sale of Assets

 

[Truemanbrown]

Can I ask you the question - was the property purchased with the intention of holding it as an investment or was the intention to develop the property and sell it?

 

[Lightning]

Can I ask you the question - was the property purchased with the intention of holding it as an investment or was the intention to develop the property and sell it?

following on from the original question, can we assume that the property was purchased to develop and sell on, what would be the treatment here? is the trading account involved?

 

[Lightning]

Can I ask you the question - was the property purchased with the intention of holding it as an investment or was the intention to develop the property and sell it?

following on from the original question, can we assume that the property was purchased to develop and sell on, what would be the treatment here? is the trading account involved?

 

[Lisha Shrestha]

Hi Fox,

For this we will need to look at the intention of the purchase of property when you purchased it, was it purchased with intention to hold it as investment property or to develop/ refurbish and sell?

If the purpose was to develop/refurbish and sell then the property would be classified as stock, if the property is investment property then it should be classified as an asset (PPE).

It is very important to rightly classify these assets, since reclassifying them in later tax years can have tax implications which needs to be considered.

As a qualified ACCA member and part-qualified CTA, I can provide further assistance and discuss your accounts and tax situation in detail. Feel free to reach out via email at (e-mail address removed) or connect with me on LinkedIn at www.linkedin.com/in/lisha-shresthaacca.