Inventory or fixed asset: the entry that decides a development's result
Nextica Law & Tax keeps the accounts of developers and property portfolios with the decisions that define them: classifying the property as inventory —if built or bought to sell— or as a fixed asset if intended for rental, and what happens when its purpose changes; work in progress and capitalising borrowing costs during construction; allocating the cost of land, infrastructure works and licences to each development; separate accounting per vehicle and per asset; and impairment when the market moves.
The same building, booked as inventory or as a fixed asset, produces two different results and two different tax bills.
What's included
1. Classifying each property on the balance sheet by its purpose
inventory if built for sale, investment property if held for letting or capital appreciation, fixed asset if for own use.
2. Recording work in progress with the costs that genuinely are production costs, and not every payment made that month.
3. Deciding and documenting the capitalisation of finance costs during the construction period, with the start and end dates of accrual.
4. Separating land from building on every addition, because all subsequent depreciation depends on that split.
5. Recognising development revenue at the right moment and not when the money from advance payments comes in.
6. Separate accounts per vehicle and consolidation where the group requires it, with intra-group transactions eliminated.
7. Year-end impairment testing where market value diverges from book value, documented with the reference used.
THE SAME BUILDING, THREE DIFFERENT ACCOUNTS
Inventory, investment property or fixed asset. The classification is not a formality: it changes the result, the tax and what the bank sees.
Misclassifying the property's purpose
recording as a fixed asset what is built for sale means depreciating what should not be depreciated, and the development margin does not appear where it should. The accounting plan treats the three purposes under different rules.
Spanish General Accounting PlanCapitalising finance costs outside the period or without documentation
capitalisation applies only while the asset is under construction and to directly attributable financing, and the end of accrual has to be dated.
Spanish General Accounting PlanRecognising development revenue when advance payments are collected
the money comes in long before risks and rewards pass to the buyer, and recognising early inflates the wrong year's result and brings the tax forward.
Spanish General Accounting PlanTWO SERVICE MODES — WHAT'S YOURS
| Accounting Review or Supervision | Integrated Accounting Outsourcing | |
|---|---|---|
| Who for? | Companies that manage their accounting internally but need periodic expert review. | Companies that prefer to fully outsource accounting management to a specialized provider. |
| What does it include? | Review of records, detection of errors and inconsistencies, validation of accounting closure, and improvement recommendations. | Full scope: transaction recording, bank reconciliation, tax filing, and financial reporting. |
| Ideal for | Startups and SMEs with an internal accountant or administrative officer who manages the accounting. Family businesses that want additional control. | Companies without their own accounting department. Companies looking to reduce fixed structural costs. Subsidiaries of multinationals reporting to headquarters. |
| Main advantage | Independent external control without replacing the internal team. Detection of problems before they become sanctions. | Zero accounting worries for the entrepreneur. Scale without the need to hire permanent staff. |
Who for?
What does it include?
Ideal for
Main advantage
Frequently asked questions
When is a property inventory and when is it a fixed asset?
Its intended use decides, not the type of property. If it is built or acquired with the intention of selling it in the ordinary course of business, it is inventory: it is not depreciated, its cost hits the income statement when sold, and its carrying amount is written down for impairment if net realisable value falls. If it is intended to generate rental income or for lasting own use, it is a fixed asset: it is depreciated over its useful life. The classification is made on recognition and must be capable of being justified with facts —marketing started, rental contracts signed—, not just a declared intention.
Can I capitalise the interest on the development loan?
Yes, within specific limits and not automatically. Accounting rules allow borrowing costs incurred before the asset is ready for use —or, for inventory, while its production or construction lasts— to be added to its cost, provided the financing is specific or, where applicable, attributable general financing, and the construction period exceeds the threshold the rule itself sets. What is not allowed is continuing to capitalise when the works are halted or already finished. It is one of the most frequent review points in audits and due diligence, because it inflates both assets and profit at once.
Content reviewed by
Elena Bosch Prat
Directora · Consultoría Contable y Financiera
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