This project addresses accounting for real estate sales in which agreements for sale are reached before construction is complete. Diversity in practice has been reported primarily in the context of residential real estate developments in which buyers enter binding ‘pre-completion’ contracts to purchase a specific unit within the development once it has been built. However, the IFRIC’s project has not been limited to such transactions—it has addressed all types of real estate.
Two questions have arisen concerning when the seller should recognise revenue:
- whether the sale agreements should be regarded as construction contracts within the scope of IAS 11, or agreements for the sale of goods within the scope of IAS 18. If IAS 11 applies, revenue is typically recognised progressively on a stage of completion basis, whereas if IAS 18 applies, revenue is recognised only when five revenue recognition criteria have all been met; and
- if IAS 18 is the applicable standard, when the criteria for recognising revenue in IAS 18 are satisfied. There is little application guidance in IAS 18, and application guidance for real estate sales in an appendix that accompanies IAS 18 appears to contradict the criteria set out in the standard itself