Professional Documents
Culture Documents
Trivia?
y Which AS is applicable to Developers?
y AS 7
y AS 9
y Something else
Problem in accounting.
y Real estate transactions are unique
y It is spread
p
over more than one accountingg period
p
y Diverse format of transaction structure
Estate Developers
y Guidance note (Rev Feb 2012) - Accounting for Real Estate
Transaction
Guidance note
Real estate
developers
AS 9 for
conditions
Real estate
transaction
AS 7 for
POCM
AS 9 for sale
transaction
POCM for
construction contracts
being recognized for the 1st time on or after 1st April 2012
y Option to apply this GN from an earlier date provided the GN
is applied to all transactions after the chosen (earlier) date
y Covers all types of real estate transactions land, plots with
POCM
y Cost incurred / Total cost of the project * 100
y Project Cost
y Cost of land & development rights - including rehabilitation
Project means.
y Project is smallest group of unit / plot/ saleable space which
Accounting principles
y Sale of flats
y Sale of land & plots
y Development activity is significant
y Development activity is not significant
y Multiple
p element contracts
y Property management services
y Rental in lieu of unoccupied premises (AambyValley)
Accounting principles
y Transferable development rights (TDR)
y Direct purchase
p
y Development & construction of built-up area
y Giving up of rights over existing structure/ open land
y FMV (asset given or asset received)
y NBV
Conditions imposed.
y All critical approvals necessary for the commencement of the
environmental
i
t l clearance,
l
approval of plans,
designs,
title to land or other rights for development,
change in land use, etc
p
development
of land and borrowing cost) is not less than 25% of the estimated
Construction & Development cost of the project
Conditions imposed.
y Atleast 25% of the saleable area is secured by contracts or
y Change
g in estimate of project
p j cost & revenue is considered to change
g
in accounting estimate
Disclosures.
y Project revenue recognized & method used
y Method of determination of stage
g of completion
p
y Aggregate amount of cost incurred and profit recognized,
y Amount of advances received, work in progress, inventory
y Unbilled revenue i.e. excess of revenue over actual bills
raised
Illustration 1
Total Saleable Area
20,000 sq ft
Land cost
5,000 sq ft
Amount realized
Rs. 50 lacs
Illustration 2
Total Saleable Area
20,000 sq ft
Land cost
5,000 sq ft
Amount realized
Rs. 50 lacs
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Case Study
Real Estate developer has entered into a Joint Venture
agreement with the land owner under which the developer is
obligated to provide certain constructed area free of cost to the
Land owner in lieu of consideration for the development right.
Question:
y Whether cost of free constructed area to be recognized in
financial statement at the inception of the contract?
y Iff yes:
y Whether at the estimated cost of construction
y Whether at the Fair value of the land and/or constructed area
Anand Banka
Partner,
Talati & Talati
Chartered Accountants
Email: anand.banka@talatiandtalati.com
Mob: 98673 53743
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