Accounting treatment for land option contracts

Discussion in 'Accounting' started by Joker, Apr 4, 2005.

  1. Joker

    Joker Guest

    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. Let’s
    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"
     
    Joker, Apr 4, 2005
    #1
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