Question
Molar Limited intends to construct twenty (20), two-bed - roomed flats starting 1 April 2014. The flats will be let out to various customers at
Molar Limited intends to construct twenty (20), two-bed - roomed flats starting 1 April 2014. The flats will be let out to various customers at a monthly rental of K3,000 payable three (3) months in advance. Further, tenants will be required to make a security deposit equal to one months rent at the time they take occupancy of the flats. The security deposit is refundable upon termination of tenancy agreement by either tenant or Molar Limited and after deducting repair costs relating to any damage to the property caused by the tenant. Construction of flats commenced on 1 April 2014 and flats are expected to be ready for occupation on 31 March 2015. The transaction has not been recorded in the books of Molar Limited.
a) Explains how the flats will be treated in its financial statements during and after construction has been completed. (b) Explains how Molar Limited would treat rentals and security deposit in the financial statements for the year ended 31 March 2016. Assume 40% of the flats are occupied the whole year to 31 March 2016 and that no tenant will stay in the flat for less than one year.
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