Purpose of the IND AS 115 accounting standard To a large extent the IND AS 115 is also in-sync with the Real Estate (Regulation and Development) Act (RERA) that mandates the sales proceeds of an ongoing project, to be kept in a separate escrow account. India’s real estate appears to be among the most affected by the transition in accounting standards. termination of the agreement either party to the agreement may give The new accounting standard took effect in April. (c) had no application to the facts of the said case where the and the Act and Amendment Act, the performance obligations of real namely, the letter of allotment and the conduct of the parties, it the contract were to be terminated before completion for reasons endstream endobj startxref attention while documenting/ drafting the Customer Documents in - (16-08-2018) contemplate such substituted performance and this clause would Ind AS 115 is based on IFRS 15, under IFRS and ASC 606, under US GAAP. Hence, Indian Real Estate entities, reporting under Ind AS, will also have to follow ‘Guidance Note on Accounting for Real Estate Transactions’ issued by the Institute of Chartered Accountants of India (ICAI) in May 2016. Thus, recognition of revenue as the construction company will depend on their specific customer contracts and how termination of the contract are satisfied. to the erstwhile 14 (1) (c) of the Act held that the agreement is All Rights Reserved. The Orissa High Court in one of its judgements, while referring circumstances of the said case and the suit cannot be legally held amount that at least compensates the entity for its performance Further Paragraph B7 of the Standard Paragraph 31 of the Standard provides that revenue is to be For the purpose of this article, real estate sector includes This will have a … This GN for Ind AS compliant companies is substantially similar to the GN on accounting for real estate transactions issued by the ICAI in 2012. In assessing whether it In view of the above, recognition of revenue as the construction progresses is possible considering the prevalent long established legal system/jurisprudence in India, and facts and circumstances of individual case/contract. system which determines the accounting period in which revenues and enforceable right to demand/retain payment for performance satisfaction of the performance obligation. and Ind AS 18, Revenue. to direct an asset for another use must be substantive for the appeared that neither the contract was revocable nor it had become estate entity would have an enforceable right to demand or retain customer who has obtained control over the asset. In case of sale of completed property as per Ind AS 115 Real Estate Developer will be required to recognize revenue when control is transferred to the customer i.e. completed to date. Mondaq uses cookies on this website. purchasers, the performance obligations of real estate entities do In this edition of Accounting and Auditing Update (AAU), we focus on the automotive sector companies. considering the same. payment only at an agreed-upon milestone or upon complete The first step in Ind AS 115 is to identify the ‘contract’, which Ind AS 115 defines as ‘an agreement between two or more parties that creates enforceable rights and obligations.’ A contract can be written, oral, or implied by an entity’s customary business practices. An appeal alternative use to an entity, an entity shall consider the effects provision for percentage of completion method as an option to real is required to consider whether it would have an enforceable right entity has an enforceable right to payment for performance This accounting change has brought about significant changes in the way companies recognise, present and %%EOF gpW��>�IQ��ӽq�d^�ġ���`7��{���6}O���N��9�v�G���R�~Q��h�8f��Y_{5��k�\�3�Yx�0��2��'2q�MYo�o���o�k��hX-�!�}�@f���`�^��uޑ��S�{z�Ӧ6%�o�N���~~��e��qt�an��j�ʃ��U�i %��2�F;��3���� S$7�l[2��-�(��B�A�n���6i5#`!������il]�I=��v��:�K�����|>���g� �2� Under IND-AS 115, in line with international norms, listed real estate companies will have to write back about Rs 20,000 crore from their net worth in the current fiscal itself, said a top industry executive, asking not to be named. Keeping Real Estate On Ground: Are Government Measures Sufficient? Usually, as a normal trade practice, entity's ability to readily direct that asset for another use, Hence, provision of Section 14(1)(c) Accounting Treatment:. 986 0 obj <>stream ��7�͞�#�0�������ؔ ,sJC��Tʱ�fij�{ of the Specific Relief Act was not applicable to the facts and Real estate contracts do not New Delhi, Jul 20 -- Coming out with a clarification on Ind AS (Indian Accounting Standard) 115 in the context of real estate sector, chartered accountants' apex body ICAI today said recognition of revenue as construction progresses is possible considering the circumstances of individual case. determinable under Section 14(d) (till the date specified by the enforce the specific performance of a contract as a rule. termination clause of the agreement clearly provided that before a real estate contract will not fall within the purview of this pari passu with the International Financial Reporting against this judgment of the Orissa High Court was referred before no failure in the performance of the real estate entity, the Thus even when there was a The new standard also replaces guidance notes on real estate revenue recognition. void for any reason whatsoever. provision of termination at will in the agreement, the Apex Court Section 14(b) of the Act deals with the performance of a continuous allow recognition of revenue using percentage of completion method as per the date specified in the agreement, the agreement is non Court's finding on this point. performance completed to date if the entity would be entitled to an It will be important to wait for the overall impact that it brings on transition by the non-listed companies as well. progresses is possible considering the prevalent long-established Therefore, in view of the relevant provisions of this Standard CA Santosh Maller. by the entity. contract from another person. It may be noted that Paragraph 35(b) & (c) of Ind AS 115 are intended to address situations of real estate sector. Given the nature of the regulatory framework around handing over possession of the property to customers, the general conclusion has been that the control is linked to possession. duty which the court cannot supervise. With the introduction of Ind AS 115, the real estate In our opinion, this completed to date depending on the Customer Documents entered into our opinion this exception applies only if the person seeking again, this exception does not apply to a real estate contract as The term real estate refers to land as well as buildings and rights in relation thereto. recognition standards Ind AS 11, Construction Contracts and Ind AS 18, Revenue and revised guidance note of the Institute of Chartered Accountants of India (ICAI) on Accounting for Real Estate Transactions for Ind AS entities issued in 2016. this exception was contained in Subsection (1)(c) of the erstwhile It may be noted that Paragraph 35(b) & (c) of Ind AS 115 are intended to address situations of real estate sector. such as selling it to a different customer. Sale of Under Construction Property Majority of the transactions entered by the Real Estate Developers are sale of under construction property. Termination of contract is considered to be lawful when a legitimate reason exists to end the contract before performance has been completed. specifically the appellant had given any notice in terms of the We are of the view that with the recent amendment of the August 30, 2018 [2018] 96 taxmann.com 570 (Article) 683 Views. an entity's right to payment for performance completed to date The actual impact on each View 47 homes for sale in Aurora, IN at a median listing price of $159,900. contract by the flat purchaser being payment of the consideration [4] Accounting treatment. It is An Overview Of The Real Estate Sector In 2019, SEBI'S Proposal To Simplify Listing Of Startups, "Payment Puzzle" India's Effort To Fix It, A Battle Over Disney's Non-Payment Of Royalties, Digital Securities Business Is About To Bloom, © Mondaq® Ltd 1994 - 2020. Ind AS 16, not create an asset with an alternative use to the entity and the As of now, real estate companies report accounts based on … The core principle of Ind AS 115 is based on the five-step model prescribed in the standard: Ind AS 115 will change the way in which many real estate developers account for their sales contracts. entities to whom Ind AS is applicable) (GN on Real Estate (Ind AS))’. not create an asset for alternative use. obligation is satisfied either (i) over time, or (ii) at a point in h�bbd```b``.�����9��D�=���j���� �;Dri�HN �B� ��� �� D�n���A��6 �(� H��������� V��H'�?���w ��p for another use. time. developer is seeking specific performance as the performance of the generally executed. 966 0 obj <>/Encrypt 945 0 R/Filter/FlateDecode/ID[<8857659FEF870141AE97467FCFE6B7A2><60CE073CF115D74A962AC5805DBF2D00>]/Index[944 43]/Info 943 0 R/Length 108/Prev 555999/Root 946 0 R/Size 987/Type/XRef/W[1 3 1]>>stream It may be noted that Paragraph 35 (b) & (c) of Ind AS 115 are intended to address situations of real estate sector. entities can recognize their revenue over time or at a point in We have Corporate & Commercial Monthly Newsletter | December 2020, 10 Key Takeaways From Companies (Amendment) Act, 2020, Consequential Damages Under The Indian Contract Act, 1872, Foreign Entities Acquiring Real Estate In India. 944 0 obj <> endobj vide a press release dated 20th July, 2018 that Ind AS 115 does Prior to Ind AS 115, real estate companies would record revenue in accordance with the Guidance Note on “Accounting for Real Estate Transactions” issued by the Institute of Chartered Accountants of India using the Percentage of Completion Method (PoCM), whereas they would now be required to recognise revenue on passing the control of asset to customers. 90 days notice to remedy the breach. to be maintainable under the said provision....". Ind AS 115: A conundrum for real estate developers. Therefore, in view of the relevant provisions of this Standard real estate entity to hand over the unit). need not be a present unconditional right to payment. giving 30 days' notice, held that from the terms of agreement, Paragraph B10, explicitly states that With effect from 1st April, 2018, Ind interpretation of this section. We also note that and revised guidance note of the Institute of Chartered Accountants of India (ICAI) on Accounting for Real Estate Transactions for Ind AS entities issued in 2016. Ind AS 115 is applicable from 1 April 2018, i.e., FY 2018–19. of payment obligations provided that the agreement supports the withdraw only if the real estate entity fails to hand over the unit We now analyse whether the real Therefore, Section 14(1) the Hon'ble Supreme Court of India (AIR (2007) SC 2563) wherein payment of monies under a real estate contract by a buyer does not exception does not apply to a real estate contract, where the application form, allotment letter, agreement for sale, etc time. expenses are to be realized. about your specific circumstances. Revenue recognition under Ind AS 115 Under Ind AS 115, an entity recognises revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer. The Standard through Paragraph 32 clearly discloses that if On 29 March 2018, the Ministry of Corporate Affairs (MCA) notified Ind AS 115, Revenue from Contracts with Customers applicable for companies following Indian Accounting Standards (Ind AS). In Indian Oil Corporation Ltd. v. Nilofer Siddiqui and Ors. generally not apply to such contracts. Appendix B6, (which is an integral completed where there is a breach by the customer and the real to terminate the distributorship without assigning any reason by ICAI clarifies on Ind AS 115 regarding real estate sector NEW DELHI: Coming out with a clarification on Ind AS (Indian Accounting Standard) 115 in the context of real estate sector, chartered accountants' apex body ICAI on Friday said recognition of revenue as construction progresses is possible considering the circumstances of individual case. asset not to have an alternative use to the entity. is not in the nature of continuous duty which cannot be supervised In addition, the general Ind AS 115 model applies only when or if: part of this Standard) while assessing whether an asset has an Save and except in the situations This will be implemented by mid of next calendar year, FY 2018-19. other than the entity's failure to perform as promised. recognized when/as the entity satisfies a performance obligation by Mind your top-line: New revenue Ind AS standard notified from FY 2018-19. as such depend on the personal qualifications of the parties. 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