A builder is following “Project Completion Method” of accounting for his project and therefore will recognise revenue from the project only upon completion of the project. He has therefore shown everything under capital works in progress in the Balance Sheet and has not shown anything under the closing stock in Profit and Loss Account. Now please explain in the following
1. Is “Project Completion Method” an acceptable method of accounting for real estate projects under the extant provisions of Ind-AS/ ICDS/ Income-tax Act, 1961/ Income-tax Rule, 1962 or any legal provision or accounting standard as applicable?
2. If answer to 1 is yes, then does Project Completion Method dictate that revenue be recognised only on completion of the said project. Also, is he, then, correct in not disclosing any closing stock under Profit and Loss Account in ITR?
3. If answer to 1 is No, then which method of accounting is applicable ? Is his decision to not disclose any opening/closing stock and not recognising any revenue in the P&L Account in ITR justified as per the applicable method of accounting ?
4. What changes in the accounting treatment of opening/closing stock and revenue recognition are required in the Balance Sheet and P&L Account in ITR.
Yes IndAS 115 revenue is currently dealing with contracts with customers including construction contracts. The inventory measurement is remitted from their standard if it is FVLCD by commodities traders.
Project completion method is included, to recognise revenue to the extent of percentage/(project) of completion method is still prevalent. I’m not sure about ITR as I’m currently not working on tax issues.
What industry are you referring to here? Cause the measurement exceptions are prescribed in IndAS 2.
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