CA Sandesh Mundra
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Accounting Guidance Note for the Real Estate Sector in India
Those businessmen who undertake the activity of civil construction on their own account, that is without any prior contract in place, need to follow the Guidance Note for real estate developers issued by ICAI
– The purpose of issuing the GN was to bifurcate the construction activity which was being carried out by the developers / builders on their own account.
– GN asks you to determine the point at which significant risks and rewards with regard to the property get transferred on the basis of following criteria:-
- Transfer of ownership by way of deed
- Transfer of possession.
– Transfer by way of an enforceable agreement to sale can be accepted for booking of revenue subject to fulfillment of additional conditions:-
a) Price Risk is transferred
b) Buyer has legal right to sell or transfer his interest in the property without any conditions hampering such a transfer.
Once the risk and rewards are transferred the revenue needs to be recognised as per
– a) Percentage of Completion Method prescribed under AS-7, if substantial acts with regard to construction are pending to be performed.
– b) In other cases as per AS-9, upon transfer of all risks and rewards.