The Institute of Chartered Accountants of India

Guidance Note on Accounting for Real Estate Transactions

(for entities to whom Ind AS is applicable)

1. Objective and Scope Objective

1.1 The objective of this Guidance Note is to recommend the accounting treatment by entities dealing in ‘Real Estate’ as sellers or developers. The term ‘real estate’ refers to land as well as buildings and rights in relation thereto. Entities who undertake such activity are generally referred to by different terms such as ‘real estate developers’, ‘builders’ or ‘property developers’.

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Scope 1.2

This Guidance Note covers all forms of transactions in real estate. An illustrative list of transactions which are covered by this Guidance Note is as under:

(a) Sale of plots of land (including lease of land on finance lease under Ind AS 17, Leases) without any development.

(b) Sale of plots of land (including lease of land on finance lease under Ind AS 17, Leases) with development including development in the form of common facilities like laying of roads, drainage lines and water pipelines, electrical lines, sewage tanks, water storage tanks, sports facilities, gymnasium, club house, landscaping etc.

(c) Development and sale of residential and commercial units, row houses, independent houses, with or without an undivided share in land.

(d) Acquisition, utilisation and transfer of development rights.

(e) Redevelopment of existing buildings and structures.

(f) Joint development agreements for any of the above activities.

1.3 The Guidance Note primarily provides guidance on application of percentage of completion method where it is appropriate to apply this method as explained in subsequent paragraphs as such transactions and activities of real estate have the same economic substance as construction contracts. For this purpose, the Guidance Note draws upon the principles enunciated in Ind AS 11, Construction Contracts. In respect of transactions of real estate which are in substance similar to delivery of goods principles enunciated in Ind AS 18, Revenue, are applied.

1.4 Real estate transactions of the nature covered by Ind AS 16, Property, Plant and Equipment, Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance, Ind AS 38, Intangible Assets and Ind AS 40, Investment Property are outside the scope of this Guidance Note.

1.5 This Guidance Note should be applied to all projects in real estate by entities to whom Ind AS are applicable.