Investment property purchased for sale

khawarbutt

Hello,
My employer has a few residential properties that are held for earning rentals. It also purchases residential properties with the intention of selling after carrying out repairs. My question relates to the latter. My managers has advised me that all the expenses relating to properties purchased for sale after renovation need to be capitalised as part of the cost. This includes all the expenses including repairs, building insurance, electricity & gas, council tax and water rates etc. Upon sales the cost is then compared to sales proceeds to calculate gain/loss made and transferred to P&L. Is this the correct accounting treatment? Under FRS 102 would the property be classified as PPE or inventory?

AndrewLeyland

I will make the assumption that the line of work you work in is not in property letting/building and it limited liability business.
I was needing to dig out my level 4 business tax book for this. This is not covered in that book either very well, just saying "A company with property business income must pool the rents and expenses on all its properties, to give a single profit or loss."

I do remember the questions being along the lines of why was it purchased and how long is it going to be held for should help determine if it is a revenue expense or a capital expense and sometimes being hard to work out between the 2.

I do not think all the items you lists for expenses repairs would be not be classed as capital expenses because they the day to day running costs of the rental properties and i know repairs are general classed as revenue expenditure

Here a link to talk about the topic
https://www.propertyhawk.co.uk/magazines/allowable-expenses-on-a-rental-property/
https://www.propertyhawk.co.uk/magazines/landlords-claiming-expenses/

also here a link to do with property being shown on the balance sheet
https://www.scruttonbland.co.uk/news-views/do-you-have-property-on-your-balance-sheet/#:~:text=Property will be classified as,price less costs to sell.