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Accounting treatment for sale of flat

JOYAL GEORGE (Partner M/s Balan & CO Cochin) (388 Points)

30 December 2011

In case builders involved in construction of flats and sale of flats to different customers, what should be the accounting treatment? Is it based on AS 7, construction contracts, or based on AS 9? Here the construction is completed within 3 years and booking of flat is done throughout the 3 years.

The builder doesnot have any ownership on the land in which the flat is built, he merely get an power of attorney from the land owner and constructs the flat and is sold to othrs?

Please advice me on the income recognition method also? IS it to be treated as Real estate business and whether the guidance note on real estate builders is applicable here?

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5 Replies

Giridhar S Karandikar (Team Lead) (7548 Points)
Replied 30 December 2011

In case of construction contracts whenever the builder receives the amount from the flat holders, it should be credited to the flat holders account. When all the work in respect of the particular flat is being completed & the builder is about to handover the possession of the flat to the holder of flat then the following entry needs to be passed in the books of the builder to book the income:

Flat holder’s A/c Dr.

To- Sale A/c

After posting the above entry verify that if there is any balance remaining to the flat holders account either debit or credit. If its credit then there is an excess amount collected from the holder which needs to be refunded or the sale might have been booked incorrectly.

If it is a debit balance then there is an amount receivable from the holder.

AS9 would be not be applicable in case of construction contracts. Real estate would not be applicable in your case, as the land is not belonging to the builder.

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JOYAL GEORGE (Partner M/s Balan & CO Cochin) (388 Points)
Replied 05 January 2012

Can we use AS 7 Construction Contract ie, percentage of completion method for income recognition? If no, then what should be the appropriate treatment?

neha joshi official (2 Points)
Replied 19 September 2021

Sir I had booked a flat in Jaipur(Affordable housing) and I have given the 10 percent amount through cheque I had given the cheque 28 march 2019 and my agreement to sale was in 24 May 2019 thereafter the cheque is cleared in 24 April 2019. As per the tax liability of GST. Which percent tax is applicable for this condition because as per the updated GST tax rate has been reduce by 8 percent to 1 percent.