SIGNIFICANT DIFFERENCES BETWEEN I.A.S. 11 & A.S. 7

1.      The I.A.S. 11 is applicable to Real Estate Developers.

2.      This document on real estate developers is currently not followed in India, though is proposed to be part of soon to come Ind. A.S.

3.      Real Estate Developers construct apartments/flats with an intention of selling them, therefore such apartments/flats are items of inventory for such business.

4.      In Urban cities, some apartments/flats are booked by buyers even before the construction begins. Legal title of the apartments/flats is transferred and registered in name of the buyer.

5.      In substance, the buyer henceforth exercises effective control over such apartments/flats.

6.       Therefore, the real estate developer while constructing such apartments/flats  takes on the role of the contractor as he works on the asset which does not belong to him.

7.      Under I.A.S 11, such apartments/flats are treated as Construction Contract and accounted as such by the developer. The consideration for the sale becomes the fixed contract price for accounting purpose.

8.      In respect of other apartments/flats which are not sold until ready, inventory is being created and is accounted as such.

9.      Therefore in a single project the real estate developers may treat some units as inventory and certain other units as Construction Contracts.

10.  It is also possible that the unit started out as inventory and some where it was half finished it gets sold. In such cases the total consideration receivable by the buyer is broken up into 2 components i.e. 

      a) Component of Sale of W.I.P. 

      b) Component of Construction Contract.

“In India this document is not followed and real estate developers accounts for the entire project ( all units whether pre-sold or not) under AS-2 “Inventories” . Any consideration received is held as an advance against sale of stock and is only taken as revenue when the final possession is given to the buyer.”