Recognizing revenue from the sale of real estate

Keywords: Mazars, Thailand, Accounting, TFRS, NPAEs, Real Estate, SMEs

08 March 2016

• revenue from the sale of land;
• revenue from the sale of land with a building; and
• revenue from the sale of a condominium.

The following methods can be used to recognize this revenue, based on the conditions of the sale:

• the full accrual method;
• the percentage of completion method; or
• the instalment method.

Entities can choose to recognize the revenue from sales of real estate by using the percentage of completion method or the instalment method if the sales transaction meets the following criteria:

i. The sale is consummated (In the case of the sale of condominium units, at least 40% of total units are contracted to be sold).

ii. The buyer has no right to a refund of the payment.

iii. The buyer is independent of the seller, or the sale is part of the normal course of business.

iv. The down payment and the instalment payment made by the buyer is at least 20% of the sales price set out in the contract.

v. The seller is able to collect the money as specified in the contract.

vi. Development and construction are beyond the preliminary stage, with at least 10% of overall construction of the project being completed.

vii. The seller is financially capable of complying with the contract and meeting the conditions set out in the prospectus of the project.

viii. There has been progress on construction.

ix. Aggregate sales proceeds and costs can be reasonably estimated by the seller. The estimated costs must be adjusted at least annually, or when the seller anticipates that there will be a material change in costs.

Although the Thai Financial Reporting Standards for Small and Medium Enterprises (the TFRS for SMEs) have not yet been published, it will list only one method for recognizing revenue from the sale of real estate – the full accrual method. An entity must recognize the revenue in full in the income statement when the significant risks and rewards of ownership are transferred to the buyer.

For further reading, refer to the TFRS for NPAEs and the newsletter of the Federation of Accounting Professions of February 2016.