Methods Calculation of Revenue of Real Estate Developers, Computation Of Business Income Of Real Estate Developers. Real estate sector is the fastest growing sector in the country; it provides employments to lakhs of people and has contributed a lot in the exchequer of the Government. Real Estate activity may consist of development of Townships, Residential Complexes, Commercial or Industrial Complexes etc. Real Estate projects are of long term projects, takes years to be completed.The real estate activities are spread over many years at or its takes more than one year to complete a project, thus it involves complex issue, while calculating business income of real estate projects.
Methods Calculation of Revenue of Real Estate Developers
(I) Completed Contract Method (CCM)According to Accounting Standard -09, revenue relating to any, sales transaction is recognised when significance risks and rewards of ownership of goods are transferred.
MAIN FEATURES OF COMPLETED CONTRACT METHOD (CCM);
- The Revenue is recognised in the financial statements only on completion of project;
- The consistency of income in the financial statement of developer will not be same;
- The income will be recognised on actual basic;
- No taxable income will be generated during the year ,when project is under development;
- The builder or developer may use this method to defer his/its tax liabilities;
- The real estate developer may lose benefit of Set off Depreciation or Carry Forward Losses due to long period of project and revenue recognition;
- The benefit of Section 80-IB and other incentive provisions and benefit therein may lapse due to long period of project and revenue recognition;
- The tax authorities do not prefer this method of accounting due to deferment of taxes.
(ii) PERCENTAGE OF COMPLETION METHOF (PCM);
- Revenue is recognised in the financial statements on year to year basis on the stage of completion of the project at the end of each year.
- The profit in the financial statement of developer will be reflected consistently year to year.
- The revenue is recognised before the property come into existence and physical possession of property is handed over by developer to the buyer.
- The income is calculated on estimated basis, considering total project revenue to be earned and total project expenses to be earned in future.