Builder and Development Agreement and Busienss Income

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rkdhandia (Querist)

16 October 2008 Sir,
A Company had purchased land and shown it as current assets as stock. It entered into an agreement with a Developer to develop this land and make flats. It is agreed that 50% of the constructed area to be held by developer and 50% by the owner of the land i.e. the Builder. ALl expenditure for construction to be born by Developer. In th F Y 07-08 the work in going on and full construction not completed. However, three flats constructed and given to builder has been sold out and sale deed registered by the builder. Now what treatment is to be made in the Builder Company books.
Since it is not a capital assets hence the capital gain treatment is not applicable. But the land is to be shown as WIP and the cost of the land will become the cost of all constructed area to be received from the developer as far as builder is concerned. Suppose 20000 sq ft built up are will be received by the builder in due course then the cost of the land will be divided by 20000 and the cost of 3 flats sold will be reduced from this land value. Is this method is correct ?

Te question arises that the company is transferring 50% rights in the land in facour of the developer hence at that point of time it is to be treated as sale of 50% land in favour of developer and consideration to be recieved in terms of build up area to be treated as value receivable against the transfer of 50% rights in land.