Classification of Advance Paid for Land as ‘Land Inventory’ or ‘Advance’ When Neither Possession Nor Sale Deed Executed
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- Last Updated on 22 December, 2023
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A company engaged in the construction and development of real estate and town planning has acquired a Group Housing Plot for the development of a town from the Development Authority (DA). The company has paid full consideration to the Development Authority (DA) as per the allotment letter and recognised the same as land inventory in that year.
However, the sale deed in respect of the said plot is yet to be executed, and the possession of the plot could not be obtained due to the raising of additional demand for infrastructure charges by the Authority which the Company did not accept. The company requested cancellation and refund of the full consideration amount with interest to the Company.
The Authority has given 2 options: either to execute the conveyance deed after paying the infrastructure surcharge; or withdrawal of the allotment after deducting 10% of land consideration amount. The company has requested the higher authorities to execute of sale deed at the same rate as informed vide allotment letter or to refund the complete consideration amount with interest.
Amidst these developments, the accountant is confused about the classification of the amount of advance and approached the Expert Advisory for their opinion on the classification of land acquisition either as ‘Land Inventory’ or transfer the same to ‘Advance’; or any other suitable treatment is required as per applicable Ind AS.
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