Accounting - Land for development (Stock)

[mango]

Morning All,

I ran into a problem (I think).

Our business bought a erf which we will build a house on and sell it. We have been advised that this does not fall under Investment property
as the land will be seen as "stock", this will be part of our cost of sales as we bought this to develop and sell on, we also claimed VAT on the purchase
as with any other stock.

My question is, do I book the Land purchased for development to a COGS account or an asset account? We borrowed funds from the bank, so I booked it to
COGS and the liability to the mortgage Liability account.

Please would anyone let me know if I did it correctly?

[Andromeda]

Hi Mango

If you are sure that it is inventory then you should debit the inventory account, which is a current asset. The liability account should be non-current.

[mango]

Hi Andromeda,

I think what I should have done was the following: Please correct me if I'm wrong

Dr Inventory account for the ERF - Current Asset
Cr Liability account for the Loan - Non Current Liability

Then when we sell the completed house:
Cr the Inventory account ?
Dr the Cost of goods sold account ?

Is this the right way to do it?

[Andromeda]

Hi Mango, yes. So too the building costs should be allocated to inventory as they are incurred. Most likely the whole lot is WIP until complete.

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