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Accounting treatment for land option contracts

 
 
Joker
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      04-04-2005, 03:01 PM
I thought I would phrase it another way. Does anyone have any experience
with the accounting for land option contracts; ore specifically applying FIN
46 with regards to consolidating variable interest entities? If you have
not heard of it, here is a simple scenario:



A farmer (or corp., LLC, developer) wants to sell a piece of land. In
order to protect their other assets, they form an LLC (or other legal
entity), Lets call it Land, LLC, whose sole asset is the land in question.
Builder A comes along and signs an option contract to buy the land. Letís
say the purchase price is $1,000,000 and the put up an earnest money deposit
of $70,000. Everything good so far, ok now we go to la la land. The
Builder is subject to financial interpretation number 46(R) which is long
and complicated, but basically say that the earnest money deposit is
considered equity in Land, LLC and the builder has to determine if they are
the primary beneficiary of Land, LLC. If they are, the Builder has to
consolidate the LLC even though they do not own it and are under no
obligation to own it. In most cases, if things go bad, the builder can walk
away and only loose their earnest money deposit.



So, I have been working with this issue for a few months and the process
keeps evolving. I just wanted to know that someone out there understands my
pain.


--
Joker
You have to be very careful when you do a Google search for "vacuum
enthusiast"


 
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