Dear Friends,
I have following quarry regarding accounting of building construction business.
1) One of the our clients is engaged in building construction business who during initial period incurred lots of expenditure which are accounted for WIP account as the completion of building takes a long period . Now, while the whole building is still under construction, the builder has sold some of the shops in that building to genera public. These shops are only sphere area like space under staircases etc. and not main part of that building and besides this there is no other sale of either commercial shops or residential flats during the year and the work is still under progress.
2) Now, I want to know that how the cost construction of these shops would be charged to profit & loss account? Or,
3) Can we reduce the accumulated cost of WIP from the amount of these sales?
4) What would be treatment if these shops are the main portion of the building?
5) Further, how the cost of land would be charged to the profit &loss account in respect of these shops as the agreement for the sale does not consist any clause relating to the transfer of land as ownership basis to shop owners? Or
6) What would be the treatment if the portion of land is also transferred to the shop owners?
We seek yours valuable suggestion over the aforesaid matter.
Kindly give your opinion as earliest as you can.
Warm Regards
Bye
Binay
1. All the costs incurred by you will be debit to WIP account.
2. When the building is sold proportionate cost be allocated to the particular shop etc.
3. The profit will be booked only for the shops/flats sold, as and when they are sold, till the time these will form part of stock.
CAclubindia
