Purchase of Land

by Elie
(Calgary, AB)

How to record purchase of land.

How to record purchase of land.

I am not sure how to record purchase of land: here is my real scenario:

1. It is an "agreement of sale" for corporation. Director bought the land but s/he will pay a lump sum - payable each month.

2. The land was bought for $218,000 and first payment was made in March ($15000).

3. The buyer (a director) will convey title on April 2017 when the land will be paid off. (So until then s/he won’t be a owner of that land s/he bought.)

4. In addition to the purchase price, the buyer will pay a monthly rental to seller of $1250.

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Think your way through the transactions and book each event separately. I presume when you said a Director bought the land, that s/he purchased the land in the corporation's name (I.E. not in the name of the director).

A. Record Purchase of Land

DEBIT Land $218,000.00 (a fixed asset)
CREDIT Land Purchase Loan $218,000 (a long term liability)

B. Record a monthly payment made against land purchase loan - as you have made no mention of interest, I have not included it in the entry.

DEBIT Land Purchase Loan $15,000 (Ensure only principal amount is booked here ... any interest included in payment is booked separately.)
DEBIT Interest $??? (expense - no details given)
CREDIT Bank Account $15,000

C. Record rent payment for land use (Are you sure this is not a monthly interest payment pertaining to the loan?)

DEBIT Rental of Land $1,250 (expense)
CREDIT Bank Account $1,250

As it appears the current owner of the land is also financing the sale, it is normal that title to the land would not transfer to the buyer until paid for in full. If the financing had been obtained from a third party, the purchaser would receive title immediately as the buyer would have received funds from the lending institution for the full purchase amount.

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