Business Property under construction/personal loan from a partner
I have a client that formed an LLC 3 years ago. I The permitting/legal process to start construction/renovations took a year to get through. I have to creat a new company and start their quickbooks from scratch. 2 things
1. During this process on of the partners loaned money until a construction loan could be obtained. How should that loan be set up/classified. It has not been paid back..is it member equity?
2. The building at start in 2016 was worth $200,000 after extensive renovations and construction it is now worth $1.5 million. How would I build this?? The construction work was an expense that increase asset value.
Re: Business Property under construction/personal loan from a partner
1. Ask the partner, if he does not want to get paid back, then yes it is equity investment. If he wants to get paid back then use a current liability account for the loan (as the source account for the deposit) and pay it back over time.
2. Worth 200K? the cost is what it is worth, either you just bought it, or you bought it in the past - the purchase price is the cost.
create an asset account for the building work in progress (building WIP). Post the purchase price of the building and all costs to renew/redo it to that account. If you are just buying the building and land, the portion of the purchase price attributable to the land does not go in this account, only the building costs do. The cost of the land should be posted to the land fixed asset account at purchase.
The most recent property tax breakdown will show you the relationship of the land value to the building value, use that same relationship for the new purchase price
when the building is ready for occupancy, create a fixed asset account structure. 1234 some street >> land >> building >> >> accumulated depreciation building
then use a journal entry to move the building costs from the WIP account to the building fixed asset account.