By Maria K. Davis
Accounting for actual property Transactions is an updated, accomplished reference advisor, in particular written that can assist you comprehend and practice the accounting ideas on the subject of genuine property transactions. This ebook will give you a strong device to guage the accounting results of particular offers, permitting you to constitution transactions with the accounting effects in brain, and to account for them based on US GAAP.
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Additional info for Accounting for Real Estate Transactions: A Guide For Public Accountants and Corporate Financial Professionals
21 Questions also arise with respect to the capitalization of environmental remediation costs. 2 Indirect Costs Indirect project costs are capitalized to the extent they clearly relate to the acquisition, development, or construction of a real estate project. 1 of this chapter. FAS 67, paragraph 14 Proposed SOP, Accounting for Certain Costs and Activities Related to Property, Plant, and Equipment, paragraph 34 Id. 5 for further discussion regarding environmental remediation costs. 2 Acquisition, Development, and Construction Costs 11 For internally incurred indirect costs to be capitalizable, a cost accounting system needs to be in place and adequate documentation needs to be maintained to support cost capitalization.
In determining what interest rate to use, the objective is to determine a reasonable measure of the cost of financing the acquisition and development of the asset. The interest rate or interest rates used should be based on the rates applicable to borrowings outstanding during the period. If a company has obtained a specific loan for a qualifying asset, the company may use the rate on that borrowing as the capitalization rate for the expenditures for the asset. 51 Paragraph 14 of Statement 34 provides with respect to the weighted average interest rate to be used: “In identifying the borrowings to be included in the weighted average rate, the objective is a reasonable measure of the cost of financing the acquisition of the asset in terms of the interest cost incurred that otherwise could have been avoided.
Similarly, costs incurred for property taxes and insurance relate to the building and land as a whole and, therefore, capitalization of those costs should cease when the building is substantially complete and ready for its intended use, rather than being phased in over time. 2 COSTS INCURRED SUBSEQUENT TO PROJECT COMPLETION For properties that are developed for a company’s own use or rental operations, costs will be incurred subsequent to the completion of the project. Questions of how to account for costs incurred subsequent to a property’s completion are encountered not only by real estate companies, but by all companies owning real estate.
Accounting for Real Estate Transactions: A Guide For Public Accountants and Corporate Financial Professionals by Maria K. Davis