Land Purchases and Contract Settlements

Topic: Land Purchases and Contract Settlements

Land Purchase:

to record the purchase of Land for subsequent development and sale as a House and Land package, but where there is no immediate client.  Initially therefore, the land is considered an asset of the business:

1.  process an INVOICE nominating the appropriate Supplier, e.g. Real Estate Agent, and use the Balance Sheet Job/Ledger, e.g. BALSH or GENLED, with a LAND cost centre, which should be linked to a General Ledger account in the Assets section.  This assumes the business is funding the purchase, refer to the section on Settlements where funding is through an external party.

2.  If there were any disbursements, such as Rates, then these would also be processed as INVOICE entries and put to the Overheads.  The invoice entries can then be paid.

House and Land Package:

if a House and Land package is negotiated with a client and involves an existing block of land that the business has purchased:

1.  process a JOURNAL which Debits the client’s JOB and LAND cost centre for the original purchase price and Credits the Balance Sheet via BALSH and LAND cost centre.  If the land is onsold at a different amount, then the Profit or Loss is reflected in the value of the CLAIM to the client and is not included in the journal entry amount.  The original cost has now been transferred from the Asset account to the Job cost.

Settlements:

the settlement of land purchased by the business where finance was involved:

1.  there is likely to have been a deposit paid and this would have been handled as per the section above labelled Land Purchase.

2.  the entries to record the financing of the purchase would be to post a JOURNAL which debited the Balance Sheet LAND cost centre and account, and credited a Balance Sheet Liability account, e.g. Loan - AGC Finance.  Other entries, e.g. Interest, etc. and the amount of these entries depends on the nature of the finance and agreement, and advice should be sought from your Accountant.

3.  when the House and Land Package is to be settled by the client and some of these proceeds are to pay off the original finance, then the basic approach is that a RECEIPT is processed against the client’s JOB for the contractual amount; in addition an INVOICE and PAYMENT is processed to the financier in which case the Balance Sheet and the Loan account (as in 2 above) would be used.  Note any other disbursements, such as Rates, are similarly handled as INVOICES and PAYMENTS to the appropriate party, e.g. the agent.  The reference on the receipt and payment postings is suggested to be the same where it is a combined settlement so that these entries are related.  The net of the receipt and payment/s will and should represent the amount directly received by the business.

It is important that CLAIM and RECEIPT entries are posted to the Job for the total Contract Value and not net amounts.  Any disbursements should be posted as separate entries and directed to the appropriate Supplier.