Land cost to builder if sefl owned

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anant (Querist)
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16 January 2014 Sir,
Builder is constructing an apartment on self owned land of 5400 sqft. Land was purchased by him in 1973 in Rs 12000/- only. At the time of starting the project the circle value of the land is 60 lac while the market value is Rs 1 crore. Estimated cost of construction is 1.5 crore. How the cost of land will be included in the total Project cost for accounting and taxation purpose. The actual price in 1973 ,the circle price or the market price?
Also advice which accounting method is best for very small projects like the one stated above? cash,merchentile,percentage or completion method?

Thanks

Nikhil Kaushik

Nikhil Kaushik (Expert)
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16 January 2014 the actual cost only shall be included. however, if you transfer the asset from personal assets to business asset, then the value at which it is transferred shall be included.

with regards to method of accounting, I would firmly suggest accrual accounting regardless of size of the business. the completion method etc are you used of contracts which is not the case here..

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anant

anant (Querist)
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16 January 2014 Dear Nikhil Sir,
The builder has only filed ITR returns of only one year prior to commencing this business and there is no balancesheet prepared at he point of commencing the proprietorship business. So the land in question has not been shown as a personal asset anywhere. The land although purchased in 1973 by his father was allotted to the builder in family partition in the year preceding the year in which business/construction was started.
However the intention of the builder is to sell the flats to prospective buyers. So actually the land in question has already been transferred/converted from personal asset to business asset. Are there any implications of this transfer?

Thanks in advance

Nikhil Kaushik

Nikhil Kaushik (Expert)
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20 January 2014 given the facts, the implications are simple...the cost of the asset to be included shall be the original cost...

when an individual transfers the asset to his proprietor business, there are no capital gains liability. so the original cost shall be included for the purpose of calculating total cost of construction.

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