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IND AS rule: Real estate firms fear additional compliance, paperwork

As per the new norm, real estate companies will have to switch to the project completion method from the existing percentage completion method

Raghavendra Kamath  |  Mumbai 

RBI has said banks and HFCs need to strengthen their screening process in respect of lending to the segment

The implementation of IND-AS-115 rule will increase compliance and clerical work for apart from forcing them write back profits of previous years from all projects which are not complete, developers said.

As per the new norm, will have to switch to the project completion method from the existing percentage completion method. Under the previous norm, home buyer payments toward the purchase of under construction flats were declared as turnover by and net income generated from such projects was treated as profit.

“The developers would need to write back the profit booked till date on all the ongoing projects which are not 100% complete under the new rule,” Adhidev Chattopadyay, an analyst with in a recent report.

“This would happen in the first quarter on a retrospective basis and would lead to a hit on the net worth and lead to a temporary spike in companies’ debt-equity ratio,” he said.

Though reports said that the country's largest firm DLF will have to write back profit of a significant amount from its net worth, its chief executive Rajeev Talwar said the company does not see much impact as most of its projects are complete.

"We have changed our policy to complete projects and sell," Talwar said,

However, JC Sharma, vice chairman at Bengaluru based said that the new rule will increase the compliance and unnecessary accounting work.

"IT department is collecting income tax from percentage completion method. Now the new rule is talking about completion method. WE have to maintain a separate set of books," Sharma said.

He added that they would not mind applying new rule for new projects but for complete projects, why they should go for so much compliance and paperwork, he said.

First Published: Mon, June 11 2018. 13:04 IST
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