I would like to hear your suggestions for implementing below business model in Manager:
As a Contractor the owner of a business known as “ABC” buys all building Finishing materials and stores them in the warehouse. Then gradually uses these materials for Finishing a 15 store residential unit as per contract.
ABC will not be paid cash instead they are promised say 4 flats inside the residential unit once the project is complete.
ABC now sells these the 4 flats (even though the building is not finished and the cost is unclear) in terms of installments to paying customers or suppliers (instead of owed debt ).
This is all happening in one residential unit. Other units will be built after this.
My primary question is how to introduce these 4 flats into Manager? I thought of making them Assets but the unclear cost is confusing.
You can create them as Fixed Assets. Their starting balance will be zero. Then use Inventory Write-offs so when inventory items are being used to improve the Fixed Assets, the cost of inventory item will be converted into cost of Fixed Asset.
When Fixed Assets are sold, the difference between accumulated cost price and selling price is your capital gain.
Also, you should create those 4 units as one fixed asset. Then when you sell each unit, you sell 0.25 of that fixed asset. The reason for it is that you don’t have to be splitting all costs among 4 fixed assets. All cost can be allocated to singular fixed asset and then you sell fractions of it.
@lubos I like this approach but there are some issues here:
‘Fixed Asset’ does not have Qty so there is no way to tell how many flats are remained or sold. Especially when the sales price differs according to the flat location.
If I created one Fixed Asset I would not be able to get the correct cost. The issues with this approach is that flat units are not built one after another (Some subcontractors order materials for the entire building and some others order each 5 flats and some order each flat and a flat has 4 rooms, etc. ). We are currently working on Tower A. However we are promised different flats / flat rooms across the entire project (which has 5 Towers).
The sales invoice does look right when you use fractions. A customer could buy a flat or they could buy one unit within a flat.
I make sales invoices as “ABC” for the materials used in the project ( the project is the customer here). And I can credit their account with price of the flats that they will give us after the project finishes. I need to know how much they owe ABC therefore I can not use write-offs.
@lubos Yes this is the way I chose to do it. Even though now we have negative balance in Fixed Assets because they are sold before being purchased.
Anyways, Thank you for your opinion I just wanted to get some insight.
Perhaps you would consider making Manager more compatible with real-estate type of businesses because I believe Manager can be very competitive in this field.
Why not treat it as Work in progress (this is considered and Asset), but would avoid the negative balance in the Fixed Asset. Then do the the journal entry once the property sells.
Good idea. I could make a journal entry form “Work in Progress” to “Fixed Asset” to set asset at sales price and sell it to customers. Then do a contra entry when the whole project finishes.
If all you materials used to complete the construction and fit out fall under WIP as line items, then this would also help the QS prepare your depreciation schedule. Would probably cut down on his cost to prepare also.