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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://ie.frs102.com/members/premium-toolkit/section-23/” type=”big” color=”red”] Return to Section 23 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Agreements for the construction of real estate
Extract from FRS 102 – Section 23A.14-23A.15
An entity that undertakes the construction of real estate, directly or through subcontractors, and enters into an agreement with one or more buyers before construction is complete, shall account for the agreement using the percentage of completion method, only if:
(a) the buyer is able to specify the major structural elements of the design of the real estate before construction begins and/or specify major structural changes once construction is in progress (whether it exercises that ability or not); or
(b) the buyer acquires and supplies construction materials and the entity provides only construction services (Section 23A.14).
23A.15 If the entity is required to provide services together with construction materials in order to perform its contractual obligation to deliver real estate to the buyer, the agreement shall be accounted for as the sale of goods. In this case, the buyer does not obtain control or the significant risks and rewards of ownership of the work in progress in its current state as construction progresses. Rather, the transfer occurs only on delivery of the completed real estate to the buyer (Section 23A.15).
OmniPro comment
See examples below for illustration of the above points.
Example 19: Construction real estate – buyer has the right to specify structural design
Company A is engaged in the purchase of land and the development of property. The company purchased the land and have entered into an agreement with a customer whereby the customer would purchase the land from Company A and contract Company A to construct the customers house to that customer’s specific requirements. The customer supplies all the materials. The price for the purchase of the land should be paid on transfer of title.
In this example as the customer is able to specify the type of house that they want built and is also providing the material for Company A, Company A should account for the sale on the construction of the property on a percentage of completion basis. The sale of the land can be recognised when title to the land is transferred to the customer i.e. before the house is built.
Example 20: Construction real estate – buyer has no right to specify structural design
Company A is a construction company and purchased land to construct a number of houses on it. The Company offers customers an opportunity to purchase the house off the plan, and provide the customers with a limited number of choice with regard to the houses being built as planning has already been obtained by Company A. The customer can detail what way they want the interior to be designed i.e. choice of colour, tiling, utencils etc. The price is agreed on signing the contract. The customer must pay a deposit of 10% and the remainder on completion of the property.
In this example as the customer has no ability to negotiate a significant part of the structures of the house (i.e. the structures themselves are pre-determined), they have only acquired a right to acquire the house at the set price from the beginning. Here as Company A retains the majority of risks and rewards of ownership no revenue should be recognised on the construction of the house until the conditions in Section 23.10 are met which is likely to be on completion of the house and the legal transfer of the house to the buyer. Company A has to incur the cost of all material for the house.
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