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Cost of sale

Khurram Shahzad (Accountant) (40 Points)

27 May 2016

Dear Members, I'm doing Real Estate Business and Purchased the Plot @ installment (Normally 3 Years Installment). Landloard (Vendor) Charge me Penality if any installment is delayed.They also billed to me Possession Fee, Electricty Charges & Developement Charges once the plot payment made in full (Usually after 3Years). I'm preparing my financial Statement itslef and Please guide me about its accounting treatment , are these charges included in Cost of Sales A/c or Expense A/c ? An early response would be highly appreciated.

Thanks

Khurram

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3 Replies

CA Shubham Gupta (CA Job) (606 Points)
Replied 27 May 2016

hello
as you are in real estate business these cost will become part of property.

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mohammad rasool baig (Management Consultant) (1026 Points)
Replied 27 May 2016

All these expenses needs to be included in the cost of the asset since it is incurred during the period of construction.

Khurram Shahzad (Accountant) (40 Points)
Replied 27 May 2016

Thanks for Replying Mr.Baig ,

Could you please Solve given below example because I'm little bit confused about its accouting treatment.

Suppose, I purchased a plot @ Rs. 5,000,000 with down payment of Rs. 2,000,000 on date Apr 01, 2016. Rest of the amount Rs. 3,000,000 will be payable in 3 installment within one year .Date of Installment are Jul 01, 2016 and Oct 01, 2016 and Jan 01, 2017 . I paid the installments on date Jul 20, 2016 , Oct 074, 2016 and Jan 17, 2017 respectively .Vendor Charged me penality Rs. 50,000 at the time of transfer of plot on completion of installment. He also charge me Rs. 75,000 as a possession & transfer charges . Can Please do the necessory general entries with respect to their date.

An early resposne will be highly appreciated.

Thanks

Khurram Shehzad