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Revenue Recognition for Real Estate Business (Residential) as per INDAS 115

ANUJ GUPTA (partner) (21 Points)

07 October 2019

you are requested to kindly arrange an illustrative that how revenue is recognisied in Real estate business in case of residential society sale to customers.

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11 Replies

AsiaHorner (AsiaHorner) (22 Points)
Replied 25 September 2020

I took up the business of selling real estate 1 year ago. Everything is very unknown for me.

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Nicole (New York) (22 Points)
Replied 01 October 2020

Speaking of funding... My husband and I have always dreamed of the perfect home, the home of our dreams. It should be in an ideal location, should be large and with a large garden and a Seating area. Of course, we couldn't afford such a house and we thought about funding for real estate. We were advised by our relatives to use a platform where you can find creditors , investors, investment objects, anything. They thus purchased the house themselves. In a few minutes, we received several offers from trusted lenders with solid private money. So we got rid of the stress associated with buying a house.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 01 October 2020

Residential society consists of 100 homes worth 10₹ each.

then recognise deferred revenue in your statements because your transferring or selling homes over time and not in a single transaction.This is if you received payments from customers and did not hand over the house keys.

Bank a/c 100₹

To Deferred revenue a/c 100₹

(received payment for 10 homes)

Deferred revenue a/c 100₹

To Sales Revenue a/c 100₹

(after handing over the keys to the tenants)

The incremental costs of obtaining a contract from customers will be amortised (Commission expenses). Other costs can be capitalised as per IndAS 115.95

If you did not receive any payments, recognise revenue when a performance obligation is met ie., when ever you sell a home, recognise revenue. If you enter into a contract with customers you can recognise revenue eg., you have a signed deed with 50 customers and handed them the house keys, then only recognise revenue under accruals only for the 50 customers like below

Receivables a/c 500₹

Revenue a/c 500₹

(50*10 homes)

If full payment is met

Bank a/c 500₹

To Revenue a/c 500₹

One cannot recognise revenue for the other 50 homes.

Din Allan (Mr) (24 Points)
Replied 16 April 2021

I'm new in this bussines with real estate but it sound pretty cool

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 16 April 2021

Yes, in cosmopolitans it sounds fair. But in the rest of the country, ppl can’t earn enough as there is tough competition. Besides, I don’t understand why educated people want to work as agents when it’s a layman job.

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Din Allan (Mr) (24 Points)
Replied 19 April 2021

With the implementation of Ind AS 115, real estate companies would have to decide whether to recognize revenue based on whether performance obligations are met 'over time' or 'at a specific point in time. Revenues are remembered when they are realized and collected, not when cash is obtained, according to the revenue recognition concept of accrual accounting.
Believe me I know what I'm talking about. I've been dealing with the business of selling real estate in https://www.playarealestategroup.com/Tulum_Real_Estate_Listings/page_2515901.H T M L for over 5 years and I can say that I have reached a quite hight level of knowledge in the field.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 12 July 2021

Construction contracts with customers is different, their revenue recognition is based on stage of completion method: ‘Some contracts for the rendering of services are directly related to construction contracts, for example, those for the services of project managers and architects. Revenue arising from these contracts is not dealt with in this Standard but is dealt with in accordance with the requirements for construction contracts as specified in Ind AS 11 Construction Contracts. The definition of a Construction Contract in Ind AS 11 includes agreements of real estate development. Accordingly, revenue arising from such agreements is not dealt with in this Standard.’

if your a real estate dealer, revenue is recognised only when the performance obligation is satisfied.