Treatment of expenses

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

16 August 2011 Hi,

In case of a construction company if the buyer of the flat has paid the amount of the flat but sale deed is not done.After some period the company sales the same flat to third person for a higher amount and share the profit with the earlier buyer.Now this an expense to the company.What should be the head for this expense?

U S Sharma

U S Sharma (Expert)
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16 August 2011 its not expense, the profit is above the cost booking with 1st party, so only the excess amount is shared, its only transfer of funds from company to 1st party.

say the flat was booked for 1000
next buyer paid 1200
100 is retained by company
1100 is paid to 1st buyer

so the company income is exceeded by 100

chetan soni

chetan soni (Expert)
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16 August 2011 There could be following treatment to this transaction:
1. Receipt from first buyer should be treated as advance against booking.
2. Sales deed with second buyer should be booked as sales.
3. Advance repayment to first buyer with additional amount. This additional amount will be treated as interest on booking & same is booked as expenses in P&L A/c.

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