Mr. Landman has spent the last 10 years developing small commercial strip malls and has been very successful. He buys a residential property in a high-traffic area, rezones the property, and then sells it to a contractor who builds the plaza and sells it to investors. Mr. Landman has often been hired to manage the commercial plazas for a fee. Now Mr. Landman wants to become a real estate baron. Rather than just developing the plazas for resale, he wants to form partnerships with builders and/or investors to build commercial properties and keep them as long-term investments. He has found two properties suitable for development and made offers to the current owners to purchase these properties on January 1, Year 2. The offers are conditional upon arranging suitable financing for the acquisition.
Required:
How should these two investments be reported on the financial statements of
Holdco? Provide arguments to support your recommendations.