Monday, October 13, 2014

PROPERTY DEVELOPMENT ACTIVITIES MASB 32/MFRS 201-PART 4

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DISCLOSURE (MASB 32 PARA 50)
a.   the method used to determine the stage of completion for property development activities;
2.13 Property development costs

Property development costs comprise all costs that are directly attributable to development activities or that can be allocated on a reasonable basis to such activities.

When the financial outcome of a development activity can be reliably estimated, property development revenue and expenses are recognised in the statement of comprehensive income by using the stage of completion method. The stage of completion is determined by the proportion that property development costs incurred for work performed to date to the estimated total property development costs.

Where the financial outcome of a development activity cannot be reliably estimated, property development revenue is recognised only to the extent of property development costs incurred that is probable will be recoverable, and property development costs on properties sold are recognised as an expense in the period in which they are incurred.

Any expected loss on a development project, including costs to be incurred over the defects liability period, is recognised as an expense immediately.

b. the revenue and related expenses recognised in the  
    income statement;

2.21 Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the Company and the revenue can be reliably measured. Revenue is measured at the fair value of consideration received or receivable.

(a) Revenue from property development activities

Revenue from sale of development properties is accounted for by using the stage of completion method as described in Note 2.13.

c.             in respect of property development costs           carried as an asset:-
                i.  the gross amount of property development costs;
                ii. property development costs incurred during the 
      period;
                iii. amount of property development costs recognised      
       as an expense in the income statement
  iv. disposals or transfers to other category of assets or
      any other changes in carrying amount during the
      period
d. in respect of progress billing:-
                                i.   accrued billings as current asset,  
                  ii.  progress billings as current liability
e.            the amount of cash held under Housing Development Account [opened and maintained by licensed housing developer under section 7A of the Housing Development (Control and Licensing) Act 1966 and any other restrictions on cash:-
f. In respect of land held for property development:-
i.  the gross carrying amount of the cost and   
    accumulated    impairment loss; and
ii. a reconciliation of the carrying amount at the                       
    beginning and end of period.
g. the existence and amount of restrictions on title of  
     land
h.  Land held for property development and property                   development projects pledges as security or      
      liabilities.    

PROPERTY DEVELOPMENT ACTIVITIES MASB 32/MFRS 201-PART 3

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DETERMINATION OF STAGE OF COMPLETION
Determination may be based on:-
u The proportion that property development cost incurred for work performed to date bear to the estimated total property development costs;
u Surveys of work performed; or
u Completion of a physical proportion of the property development cost.
                i.e. physical work completed as a percent of total physical work of project.
       When stage of completion determined using proportion cost incurred to date, only property development cost that reflect work performed are included. The following cost do not relate to work performed;
                - cost of land
                - financing cost capitalised
                - advance payment made to contractor
LIQUIDATED ASCERTAINED DAMAGE (LAD)
       LAD receivable from contractor for late completion and LAD payable to customer for late delivery shall disclose as gross amount in income statement.
       Journal entry for LAD payable to customer
       Dt  LAD expenses             xxx
 Kt Provision for LAD ( Balance sheet)     xxx

BORROWING COST
       Interest on borrowing allowed to be capitalised only if the activities necessary to prepare the property for its intended use or sale are in progress
       Capitalised must be cease if project has been suspended or if no development activity is being carried on
INVENTORIES
l  Inventories of unsold completed development units shall be stated at the lower of cost and net realisable value
l  Unsold units retained by the entity are accounted for in accordance with MFRS 102/ MASB 2 Inventories, MFRS 116/MASB 15 Property, plant and equipment or MFRS 140 Investment Property/MASB Approved IAS 25 Accounting for Investment
Summarised costs journals required to apply the principle of MASB 32:-
1) When cost are allocated to or incurred in                         project :
                  Dr                         Property development project account
                                                Cr            Land held for development account
                                                Cr            Cash/ Creditors/ Depreciation/
                                                Provision, etc
2)When customers/buyers are billed for progress            billings:
Dr           Accounts receivable
                                Cr            Progress billing account
3) At the end of a period, when revenue and   
    costs are recognised based on the stage of  
    completion:
   Dr Progress billings account
         Cr Project revenue in the income statement
   Dr Project as an expense in the income statement
         Cr Project costs as an expense in the balance sheet

PROPERTY DEVELOPMENT ACTIVITIES MASB 32/MFRS 201-Part2

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PROPERTY DEVELOPMENT COST
Criteria
l  Classified as current assets
l  Comprise all cost that are directly attributable to development activities
l  A portion of the cost, based on the stage of completion, transferred and recognised as an expense in the income statement when unit are sold

Component cost:-
i.                              Costs associated with the acquisition of land
ii.                             Costs directly attributable to the specific               development activity
iii.            Costs attributable to the development activities              in            general and can be allocated      to the project/common             cost. Allocated based on             relative sales value of the            projects that benefit from such cost.
Costs associated with the acquisition of land
       Purchase price,
       Stamp duties,
       Legal fees
       Conversion cost
       etc.
Costs directly attributable to the specific development activity
       Professional fees,
       Contractor cost,
    (e.g earthworks, building construction)
       Site labour cost
       Financing cost
    (e.g loan interest, legal fee on loan facilities)
       etc.

General cost/Common cost
       Connecting roads
       Infrastructure
       etc

Allocation of cost
       Specific identification eg building costs to residential properties
       Relative sales value where specific identification not possible
       Other appropriate methods consistently applied where allocation based on relative sales value is impracticable

PROPERTY DEVELOPMENT ACTIVITIES MASB 32/MFRS 201-PART 1

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DEFINITIONS
Activities involving the necessary steps to plan and construct, and comply with statutory and contractual requirements in the development of land into vacant lots, residential, commercial and/or industrial buildings [MASB 32(5)]/MFRS 201
Apply to entities engaged in property development activities including those governed by the Housing Development (Control and Licensing) Act, 1966.
OBJECTIVE
l  To understand the specialised nature and the features of property development activities;
l  To understand in detail the requirement of MASB 32, Property Development Activities;
l  To deal with the recognition and measurement of property development activities; and
l  To deal with the presentation and disclosure of property development activities
NATURE OF ACTIVITIES
       Acquiring land for the purpose of development
       -Construct & Selling completed residential
       -Development of vacant lot for sale
LAND HELD FOR
PROPERTY DEVELOPMENT
Criteria
l  Classified as non current asset
l  Carried at cost less any accumulated impairment losses.
l  Not subject to systematic amortisation
l  Reclassified to property development cost (current asset) as and when development activities commence
PROPERTY DEVELOPMENT REVENUE 
Comprise
ü  Selling price in sale and purchase agreement
ü  Any changes due to variation in development work (VO)
Criteria for Revenue Recognition
ü  When sale of the development unit is effected (The individual sale and purchase agreement has been signed)‏
ü  Development and construction activities have begun; and
ü  When financial outcome of the development activities can be reliably estimated
ü  When the outcome of a development activity cannot be reliably estimated:-
ü  Property development revenue shall be recognised only to the extent of property development costs incurred that is probable will be recoverable
ü  Property development costs on the development unit sold shall be recognised as an expense in the period in which they are incurred
ü  Any expected loss on a development project shall be recognised as an expenses immediately (including costs to be incurred over the defects liability period)
Financial outcome of a development activity can be reliably estimated when all of the following conditions are satisfied
         i.            Total revenue from development activities can be measured reliably
       ii.            Probable that the economic benefits associated with the development project will flow the enterprise
      iii.            Both costs to complete and stages of completion can be    measured reliably
     iv.            Costs attributable to the development activities can be                  clearly identified and measured reliably so that actual development costs can be compared with previous year.