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IFRS QUERY......

CA MAULIK (C.A) (937 Points)

09 February 2011

Under the IFRS regime,for the real estate contracts.....for the client adopting IFRS,will it b classified under SALE OF GOODS or CLASSIFIED as constuction contract?

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2 Replies

Rawat (ACCA) (175 Points)
Replied 10 February 2011

As per IFRIC 15 , Only when the buyer is able to specify the major structural elements of the design of the real estate either before or during construction then only IAS 11 is applicable otherwise revenue will be recognized under IAS 18

Now under IAS 18 this transaction needs to be checked for 3 different criterias:

1) If your company is only responsible for assembly of material supplied by the customer -- Recognise revenue as per stage of completion in accordance with the guidance given in IAS 18 for "Rendering of Services"

If your company is arranging for materials in addition to providing the services for construction then check :

2) Whether the significant Risk & reward of ownership of the Work-In-progress is transferred to the buyer immediately as the construction progresses OR

3) Whether the Risk & reward of ownership is transferred to the buyer at the completion.

In the case of (2) recognize revenue by reference to stage of completion

In the case of (3) recognize revenue as Revenue from sale of goods when all the 5 criteria are met.

To decide whether case falls in 2 or 3 above , we need to check what will happen if the agreement is terminated in between, in your case during the period of one year.

If on termination of the agreement ---the WIP rest with your company then it means that the agreement falls in point 3 above

If on termination of the agreement--- the WIP rest with the buyer then it means that the agreement falls in point 2 above.