IFRS 15 Revenue for Real Estate & Property Development

Step 1: Identify the Contract

IFRS 15.9–21All five criteria must be met for a contract to exist

Have the parties approved the contract and are committed to perform their respective obligations?

IFRS 15.9(a)

Approval can be written, oral, or implied by customary business practice. Commitment means the parties intend to enforce their respective rights. Consider whether there is a signed agreement, purchase order, or established pattern of dealing that evidences approval.

Can the entity identify each party's rights regarding the goods or services to be transferred?

IFRS 15.9(b)

The contract must establish enforceable rights for each party. This includes identifying what goods or services the entity will transfer and what the customer is entitled to receive. Even if terms are implicit or established by customary business practice, rights must be identifiable.

Can the entity identify the payment terms for the goods or services to be transferred?

IFRS 15.9(c)

Payment terms include the amount, timing, and form of consideration. The terms need not be explicitly stated if they can be determined from customary business practices or the contract's terms and conditions. Consider fixed prices, variable elements, milestone payments, and credit terms.

Does the contract have commercial substance — that is, the risk, timing, or amount of the entity's future cash flows is expected to change as a result of the contract?

IFRS 15.9(d)

A contract has commercial substance when it is expected to change the entity's future cash flows. This criterion prevents entities from recognising revenue on reciprocal exchanges of goods or services of similar nature and value (e.g., barter transactions between oil companies to fulfil demand in different locations). Most arm's-length commercial transactions have commercial substance.

Is it probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer?

IFRS 15.9(e)

Assess the customer's ability and intention to pay. Consider the customer's credit history, financial condition, collateral or guarantees, and the entity's past experience with similar classes of customers. 'Probable' means more likely than not under IFRS. If the entity offers a price concession, assess collectability on the reduced (expected) amount, not the stated contract price (IFRS 15.9.A1).

Contract Combination Assessment

(Optional)

Are there multiple contracts with the same customer (or related parties) entered at or near the same time that should be combined?

Contract Modification Assessment

(Optional)

IFRS 15 Revenue Recognition for Real Estate & Property Development

IFRS 15 in Real Estate centres on whether revenue should be recognised over time or at a point in time.

The Over-Time vs Point-in-Time Decision: IFRS 15.35 criterion (c) is the most commonly applied: no alternative use + enforceable right to payment. Both must be met simultaneously.

No Alternative Use (IFRS 15.B6-B8): Contractual restrictions preventing reallocation, or practical limitations making it infeasible. Standard units in multi-unit developments where any unit could be allocated to any buyer may have alternative use.

Enforceable Right to Payment (IFRS 15.B9-B13): Must include reasonable profit margin, not just cost recovery. Highly jurisdiction-specific — consumer protection laws may allow rescission. Requires legal opinion.

Performance Obligations: Parking and storage are typically distinct. Base fit-out (making a unit habitable) is not distinct from the unit. Premium fit-out upgrades may be distinct. Property management is a separate PO.

Variable Consideration: Area adjustment clauses, late penalties, incentive rebates. Milestone payments may create significant financing components (IFRS 15.60-65).

Progress Measurement: Cost-to-cost input method is most common. Land cost allocation requires attention — include proportionally rather than recognising full margin at day one (IFRS 15.B19).

Common Audit Pitfalls:

No legal opinion on right to payment enforceability.
Concluding 'no alternative use' for standard un-customised units.
Including full land cost in progress at inception.
Not assessing significant financing in 2-3 year milestone schedules.

Typical Contract Structures

Sale-and-purchase agreements for off-plan properties, specifying unit, price, milestone payment schedule, and completion date. May bundle parking, storage, fit-out, and property management. Development agreements with institutional investors may include profit-sharing.

Common Performance Obligations in Real Estate & Property Development

Property unit Common area facilities Property management Interior fit-out Parking allocation

Regulatory Context

Off-plan sales regulations vary by jurisdiction. RERA in Dubai, HMDA in India, and local consumer protection laws all affect contract enforceability and the IFRS 15 analysis.

Worked Example: Off-Plan Apartment with Parking and Fit-Out

UrbanDev sells an apartment for €450,000 with parking (SSP €30K), premium fit-out (SSP €40K), and 2 years property management (SSP €24K). Total SSP €494K. Construction 18 months. Legal analysis confirms no alternative use and enforceable right to payment.

Step 1: Identify the Contract

SPA signed by both parties. All IFRS 15.9 criteria met. Legal counsel confirms enforceability with no statutory cooling-off period.

Step 2: Identify Performance Obligations

Four POs: (1) Apartment unit; (2) Parking — distinct; (3) Premium fit-out — beyond base spec, distinct; (4) Property management — distinct ongoing service.

Step 3: Determine the Transaction Price

€450,000 fixed. Area adjustment clause assessed but immaterial. No significant financing component (payments protect against default per IFRS 15.62(c)).

Step 4: Allocate the Transaction Price

Relative SSP allocation. Apartment = €364,372; Parking = €27,328; Fit-out = €36,437; Management = €21,863.

Step 5: Recognise Revenue

Apartment: over-time (IFRS 15.35(c)) using cost-to-cost. Parking: over-time alongside building. Fit-out: over-time during fit-out phase. Management: over-time straight-line post-handover.

IFRS 15 Revenue Recognition Audit Toolkit — free PDF

Complete audit toolkit: IFRS 15 five-step decision flowchart poster, contract assessment template, PO identification checklist, SSP allocation worksheet, and industry-specific application notes.

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Frequently Asked Questions

How do I determine over-time vs point-in-time for property?

Apply IFRS 15.35(c): no alternative use (contractual/practical restrictions) AND enforceable right to payment including reasonable margin. If either fails, recognise at handover. Requires legal analysis.

What does 'no alternative use' mean?

Per IFRS 15.B6-B8, the entity cannot redirect the asset to another customer due to contractual restrictions or practical limitations. Assessed at inception.

How should land costs be included in cost-to-cost?

Land is often 30-50% of cost. Include proportionally as construction progresses, not all at day one — per IFRS 15.B19, exclude costs that don't depict progress.

Does a milestone schedule create a financing component?

Not necessarily. IFRS 15.62(c) notes that advance payments protecting against default don't create a financing component. Assess substance.

How are common areas accounted for?

Generally not separate POs in residential sales — they enhance the unit. Cost is included in the cost-to-cost progress measure.

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