Recommendation R-X/2019 OK Construction “Accounting for equity participation agreements (PAA) with the developer”

Accountants often have difficulty recording shared-equity construction transactions. Questions are raised by the nature of the relationship between the developer and the shareholder from the point of view of civil law. For tax accounting purposes, it is considered that the developer receives targeted financing from shareholders, while for accounting purposes the funds received are not targeted because they are of a compensatory nature (the shareholder transfers the money, the developer transfers the apartment). The article “Equity Construction Accounting” will talk about all the intricacies of recording transactions.

Shared construction accounting – main points

Under the concept of “shared construction”

is understood as a form of investment activity in the field of construction, during which the developer (represented by an investment or construction company) plans the construction of real estate objects (equity-shared construction projects) and for these purposes engages in attracting funds from organizations and individuals (shareholders, participants in shared construction). The completed construction project, according to the share participation agreement, after its commissioning becomes the property of the shareholders.

Before delving into the instructions regarding accounting, you should pay attention to the text of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated July 11, 2011 No. 54. It contains some conclusions that will help to understand the validity of the requirements regarding the reflection of records of business transactions with the developer. The Resolution states that any agreement (including agreements for participation in shared construction) related to investments in the construction sector, in which it is planned to transfer to the investor a financed share in real estate, cannot be considered as a separate type of agreements. It is necessary to build on the concepts provided for by the Civil Code of the Russian Federation.

Thus, an agreement for participation in shared construction is close in essence to the contracts for the sale and purchase of a future property mentioned in the Civil Code of the Russian Federation.
Based on this statement, the agreement we are considering will be considered as a special purchase and sale agreement with an individual procedure for registering ownership rights - directly to the buyer, without the participation of the seller-developer.

Share participation agreement accounting entries

The construction process usually involves several participants. The key figures are the investor and the developer.

Everyone understands who an investor is. The investor finances the construction and upon completion receives ownership of the capital construction project. 2 tbsp. 4 of the Law of February 25, 1999 No. 39-FZ.

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But the situation with the terms “developer” and “customer” (“technical customer”) is confusing, because different definitions are given in the regulations of different years. But now these terms are used in the meaning established by the Town Planning Code (hereinafter - GrK) Art. 3rd Civil Code of the Russian Federation.

As a rule, a developer is an organization (although it can also be an individual) that owns or leases a plot of land and organizes the construction of a property on it for investors. 16th century 1 Civil Code of the Russian Federation.

But if we are talking about shared construction, then only an organization can be the developer. 1 tbsp. 2 of Law No. 214-FZ of December 30, 2004 (hereinafter referred to as Law No. 214-FZ). The developer obtains permits for the construction of the facility and for its commissioning. 1 tbsp. 51, paragraph 2 of Art. 55 Civil Code of the Russian Federation.

A technical customer is a specialized construction organization that, on behalf of the developer (under an agency agreement), performs various organizational actions - enters into contracts for the preparation of design documentation, controls the quality of construction work, etc. 22 art. 1 GRK RF

Note that one company can combine various functions, for example, be an investor and a developer at the same time.

As we can see, “developer” and “technical customer” are categories that define the relationship between the parties solely for the purposes of state control in the field of urban planning (issuing various permits, regulating activities to raise funds for shared housing construction, etc.).

As you understand, for accounting purposes, it does not matter who issues the construction permit or the commissioning of the facility. After all, the accounting procedure, first of all, should reflect the economic content of business transactions between the parties.

By the way, we can say that the urban planning term “developer” has an economic equivalent - this is a developer. Development is a foreign word (from the English development), but recently it has taken root among us.

Companies that build real estate with their own funds and with the money of investors and make a profit from their sale or rental are called developers. But for simplicity, we will continue to use the term “developer” in this article.

Tax accounting of the developer during shared construction

Today, the position of regulatory authorities and courts on taxation of developers’ activities is that, regardless of the terms of construction financing contracts, they are essentially agents and provide a service to the investor.

As we have already said, this approach in most cases does not correspond to the essence of the relationship between the investor (shareholder) and the developer. However, this position is sustainable for both income tax and VAT purposes.

It has not changed even after the clarification of the Plenum of the Supreme Arbitration Court that, from a legal point of view, investment agreements are most often contracts for the sale and purchase of future real estate. 4 Resolution of the Plenum of the Supreme Arbitration Court of July 11, 2011 No. 54.

Let's see how a developer needs to calculate income tax and VAT on investment agreements and DDU.

Shared construction accounting

The legislative framework and practice of reflecting transactions related to shared construction in accounting accounts have not been fully developed at the moment. Accountants of organizations that are customers in shared construction often experience difficulties in reflecting the relevant business transactions in accounting.

So, as has already become clear, an agreement for shared participation in the construction of an object is a type of purchase and sale agreement. Then it can be argued that the transfer of commissioned objects to the shareholder is an operation for the sale of finished residential premises (construction products). But here the fact of transfer of ownership from the seller to the buyer is not revealed, which means that the sale transaction cannot be opened in the developer’s sales accounts (clause 12 of PBU 9/99).

Then the accountants decided to reflect transactions for the sale of finished products (houses, apartments, parking spaces, non-residential premises), since it can be assumed that special conditions may be provided for by Law No. 214-FZ.

Important!

Based on the results of the posting, the savings of the shareholders’ funds are not determined, because the cost of the contract (not taking into account the developer’s remuneration) is reflected in full as proceeds from the sale of the completed construction project.

BASIS: VAT

The amount of “input” VAT presented for the provision of developer services should be deducted in accordance with the generally established procedure. That is, after the asset is registered, in the presence of an invoice and relevant primary documents (in addition, other conditions necessary for applying the deduction must be met) (subclause 1, clause 2, article 171 and clause 1, article 172 of the Tax Code RF).

When building on its own, the developer performs the functions of a contractor and calculates taxes in the same manner as the contractor.

Tax accounting in shared construction

For the purposes of calculating income tax, money from shareholders collected in the developer’s accounts is considered targeted financing, and therefore does not form a tax base. As for VAT, the issue is controversial. In some cases, investor money is considered revenue and is taxed. However, pp. 22 clause 3 art. 149 of the Tax Code of the Russian Federation exempts from taxation transactions for the sale of residential premises and shares in them. But non-residential premises and parking spaces can also be built. Let us turn to the text of paragraphs. 1 clause 1 art. 146 of the Tax Code of the Russian Federation, according to the provisions of which taxes are imposed on transactions involving the sale (transfer of ownership rights) of goods, works and services. But in the case of a developer, there is no transfer of property, which means no tax has to be paid.

Construction completed: accounting and taxation

The investor and the investor-customer (also known as the developer) entered into an investment contract for the construction of a shopping center and a warehouse, which will be located on the same plot of land. Investment in construction is carried out by both parties. At the same time, under the terms of the contract, all constructed property associated with the shopping center is transferred to the investor, and the constructed objects related to the warehouse are transferred to the developer. The developer does not carry out construction and installation work on its own.

When preparing to transfer the constructed premises from the developer’s balance sheet to the investor’s balance sheet, the following questions arose:

1. How to distribute the costs incurred for the construction of utilities (external power supply networks, water supply and sewerage systems, etc.), access roads and improvement facilities that are intended for the functioning of both a shopping center and a warehouse?

2. How should the developer’s overhead costs associated with this construction be distributed; can they be completely transferred to the investor?

3. What is the procedure for deduction by the investor and developer of VAT amounts charged to the developer by contractors from 2004 to 2010, provided that at the moment neither the investor nor the developer has taken advantage of this deduction?

4. What is the procedure for assessing property tax on constructed buildings for investors and developers?

Let's consider a possible way to solve the problems that have arisen.

Shared construction accounting – construction is carried out independently

It happens that the developer collects funds from shareholders in order to later independently engage in the construction of the facility, not by contract. In this case, accounting is also carried out: expenses are accumulated in the DEBIT of account 20 in correspondence with the CREDIT of accounts 10, 70, 60, etc., after which the price of finished construction products is formed in the DEBIT of account 43. Turnovers on the sale of objects are reflected as usual . The money that will be paid to him as remuneration should be accounted for as advances on the CREDIT of account 62. Costs related to the provision of services are reflected on the DEBIT of account 20.

According to the provisions of Letter of the Ministry of Finance of the Russian Federation dated July 12, 2005 No. 03-04-01/82, if the developer carries out construction and installation work on his own, the investments of shareholders must be included in the tax base as advance payments for future construction work on the basis of paragraphs. 1 clause 1 art. 162 of the Tax Code of the Russian Federation. However, in 2011, the clarifications of IFRIC 15 came into force, paragraphs 10-12 of which provide:

• entry into the scope of application of IFRS 11 “Construction Contracts” of contracts for the construction of real estate in the event that shareholders have the right to significantly influence the design of the future construction project;
• classification of a shared construction agreement as an agreement for the sale of goods within the framework of the application of IAS 18 “Revenue”, if shareholders cannot choose the design or make adjustments to the main elements of the structure during construction.

And international standards can be used in conjunction with accounting regulations approved by the Ministry of Finance, if the regulations do not establish methods of accounting for a specific issue. And if we apply the clarifications in the field of construction contracts, the contract will be considered as a purchase and sale agreement in any case, and the sale of construction projects is not subject to VAT. Conclusion - funds of shareholders should not be subject to VAT.

Recommendation R-X/2019 OK Construction “Accounting for equity participation agreements (PAA) with the developer”

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Archival document

RECOMMENDATION R-X/2019 – OK CONSTRUCTION

“ACCOUNTING FOR EQUAL PARTICIPATION AGREEMENTS (EPA) WITH THE DEVELOPER”

DESCRIPTION OF THE PROBLEM

The developer (legal entity), on the basis of a construction permit, attracts funds from individuals under agreements for participation in shared construction of apartment buildings (hereinafter referred to as MKD) within the framework of the Federal Law “On participation in shared construction of apartment buildings and other real estate and on amendments to some legislative acts of the Russian Federation" dated December 30, 2004 No. 214-FZ (hereinafter referred to as -214-FZ).

Construction is being carried out in an orderly manner with the involvement of a general contractor.

The main terms of the equity participation agreement (hereinafter referred to as the ESA) include:

1) the contract price is determined as the amount of money to reimburse construction costs and money to pay for services (remuneration) of the developer. The remuneration is determined as a percentage of the contract price.

2) savings determined based on construction results are an additional remuneration for the developer;

3) the developer, within 6 months from the date of receipt of permission to put the apartment building into operation, is obliged to transfer the shared construction object to the participant under the transfer deed. Registration of construction projects into the property of the developer is not provided.

4) the developer’s obligations are considered fully fulfilled at the moment of signing the transfer deed.

Due to the fact that today the accounting procedure for the developer within the framework of 214-FZ has not been regulated, the developer has established in its accounting policy the accounting system presented in Table 1.

Table 1. Accounting system enshrined in the accounting policy

In the balance sheet, the costs of construction and maintenance of the developer’s service are reflected in current assets in the “Inventories” group of the “Main production” item, incl. line “Unfinished construction, shared construction object.”

The funds of the Participants of the DDU in terms of financing construction are reflected in the section “Short-term liabilities” as part of the group “Accounts payable” with the highlight of the article “Liabilities under agreements for participation in shared construction”.

Revenue for accounting purposes is determined twice:

• on the date of permission to put the apartment building into operation in the amount of the percentage determined in the DDU agreement;
• on the date of the transfer deed in the amount of savings from construction.

In this regard, the following questions arise:

1) does the developer have risks of distortion of financial statements? If these risks exist, what are they and why?

2) what are possible recommendations for recording the activities and principles for generating reporting for the developer?

SOLUTION:

Among the Russian regulatory legal acts on accounting there are no documents directly related to the described situation.

At the same time, in this case, the Accounting Regulations “Accounting for Construction Contracts” PBU 2/2008 (hereinafter referred to as PBU 2/2008) can be considered applicable.

Based on paragraph 1 of PBU 2/2008, this Regulation is not directly intended for developers. At the same time, according to paragraph 2 of PBU 2/2008, “ The provision also applies to contracts for the provision of services that are inextricably linked with a facility under construction, the duration of which is more than one reporting year or the start and end dates of which fall on different reporting years.”

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The content of the developer's obligations under the DDU agreement essentially represents services that are inextricably linked with the facility under construction. This is confirmed by the fact that the developer, under the DDU agreement, does not receive any rights of the owner in relation to the object under construction. The qualification of the developer's obligations as a “service” may be challenged, but such a challenge is not relevant for determining the accounting treatment of the developer due to the following:

• Having assumed the inapplicability of PBU 2/2008 to the developer, the developer organization must independently formulate an accounting policy in relation to DDU agreements, guided by the Accounting Regulations “Accounting Policy of the Organization” PBU 1/2008 (hereinafter referred to as PBU 1/2008).

According to paragraph 7 of PBU 1/2008 “If accounting methods are not established for a specific issue in regulatory legal acts, then when forming an accounting policy, the organization develops an appropriate method, based on this and other accounting provisions, as well as International Financial Reporting Standards . At the same time, other accounting provisions are applied to develop an appropriate method in terms of similar or related facts of economic activity, definitions, recognition conditions and procedures for assessing assets, liabilities, income and expenses.”

The need to use the specified norms of PBU 1/2008 in the accounting of agreements for participation in shared construction is indicated in the Letter of the Ministry of Finance of Russia dated November 6, 2013 No. 07-01-06/47399.

• choosing other accounting provisions, the organization is forced to return to the application of PBU 2/2008, since only it considers similar and related facts of economic activity, definitions, recognition conditions and procedures for assessing assets, liabilities, income and expenses. From the point of view of the consequences for accounting and emerging accounting objects, the economics of relations between the developer and the shareholder under the DDU agreement, on the one hand, and with contractors, on the other hand, do not differ from the economics of relations between the contractor and the customer, on the one hand, and with subcontractors, on the other hand.

Based on the provisions of paragraph 7 of PBU 1/2008, the accounting policy of the organization must ensure that the facts of economic activity are reflected in the accounting records based not so much on their legal form, but on their economic content and business conditions (the requirement of priority of content over form).

During the construction of real estate, including using shared construction mechanisms regulated by the Federal Law “On participation in shared construction of apartment buildings and other real estate ...” No. 214-FZ (hereinafter referred to as 214-FZ), civil contractual relations can be built into a long chain of contractors, subcontractors, general contractors, customers, developers and other persons, starting with the one who directly performs the work and ending with the one who delivers the result to the end user. The economic content of the rights and obligations of all participants in this chain from an accounting point of view is similar, regardless of what term this participant is called in the contracts. Therefore, in accordance with the above requirement of PBU 1/2008, the methods of accounting for such economic entities must be similar. In particular, the accounting policy of the developer in terms of DDU agreements should be similar to the accounting policy of contractors in terms of construction contracts.

The only exception from the point of view of similarity is the final participant in construction, who receives the result of construction for the purpose of using it for his own needs and does not intend to further alienate it in favor of other persons. In this regard, in the situation under consideration, the Regulations on accounting for long-term investments, approved by letter of the Ministry of Finance of the Russian Federation dated December 30, 1993 No. 160, are not applicable. In accordance with paragraph 1.2 of this regulation, for its purposes, long-term investments are understood as the costs of creating, increasing the size, as well as acquiring non-current durable assets (over one year) not intended for sale. Thus, this provision can only be applied by those organizations for which the construction project will become a fixed asset (or other non-current asset) upon completion. The developer does not belong to such organizations, therefore the Regulations on accounting for long-term investments are not applicable to it.

Based on the foregoing, the choice of accounting methods for the developer in relation to DDU agreements should be based on the norms of PBU 2/2008. At the same time, despite the above argumentation, in practice developers rarely base their accounting policies on the requirements of PBU 2/2008. In this regard, when developing its accounting policies, an organization must keep in mind that established practice often carries more weight in the eyes of accounting specialists than the requirements of regulatory legal acts.

Based on the accounting policy for DDU agreements on PBU 2/2008, the organization must recognize revenue using the “as ready” method. This method provides that contract revenue and contract expenses are determined based on the organization's confirmed degree of completion of the contract work as of the reporting date and are recognized in the income statement in the same reporting periods in which the relevant work is performed, regardless of whether they should not be presented to the customer for payment until the work under the contract is fully completed (the stage of work stipulated by the contract).

In relation to the described situation, recognition of revenue upon completion refers to both the developer's basic remuneration, determined as a percentage of the contract price in the form of an addition to reimbursable costs, and to the developer's additional remuneration, determined in the amount of savings received by the developer. In this case, the value of each of these components of revenue should be calculated separately, based on the actual volume of work performed as of the reporting date, the actual costs of the developer attributable to this volume of work, and the actual savings identified.

Recognition of revenue when ready will be acceptable even if the applicability of PBU 2/2008 in relation to the situation under consideration is disputed. If PBU 2/2008 is not applied, the organization, to recognize revenue, is forced to turn to the Accounting Regulations “Income of the Organization” PBU 9/99, approved by Order of the Ministry of Finance of Russia dated May 6, 1999 No. 32n (hereinafter referred to as PBU 9/99). In accordance with paragraph 13 of PBU 9/99, an organization can recognize in accounting revenue from the performance of work, provision of services, sale of products with a long manufacturing cycle as the work, service, product is ready or upon completion of the work, provision of service, or production of products in general . Revenue from performing specific work, providing a specific service, or selling a specific product is recognized in accounting as it is ready, if it is possible to determine the readiness of the work, service, or product.

The difference between the application of PBU 2/2008 and PBU 9/99 is that in the first case, recognition of revenue when ready is mandatory, and in the second case, this is the choice of the organization. At the same time, such a choice cannot be arbitrary, but must be based on the requirements of regulatory legal acts. Due to the absence of standards directly applicable to the described situation, the organization, referring to paragraph 7 of PBU 1/2008 cited above, should pay attention to the fact that it indicates the need to apply not only other accounting provisions (in terms of similar or related issues ), but also international financial reporting standards (hereinafter referred to as IFRS). The amendments made to PBU 1/2008 by order of the Ministry of Finance of Russia dated April 28, 2017 No. 69n (registered with the Ministry of Justice of Russia) did not change this requirement, but made it more specific. After these amendments enter into force (expected in July 2017), the application of IFRS becomes a priority over the application of other provisions of Russian standards in terms of similar or related issues.

Among the IFRS documents, the clarification of IFRIC 15 “Agreements for the construction of real estate” (hereinafter referred to as IFRIC 15), put into effect on the territory of the Russian Federation by order of the Ministry of Finance of Russia dated December 28, 2015 No. 217n, is directly related to the described situation. Based on this clarification, if a contract for the construction of real estate is concluded on the same terms and conditions as DDU contracts are concluded in accordance with 214-FZ, as in the situation under consideration, then revenue from such contracts should be recognized when ready.

In connection with the introduction of International Financial Reporting Standard (IFRS) 15 “Revenue from contracts with customers” (hereinafter referred to as IFRS 15) on the territory of the Russian Federation by order of the Ministry of Finance of Russia dated June 27, 2016 No. 98n (mandatory for application from 2018 with the possibility of early voluntary application), IFRIC 15 is not applied by organizations that apply IFRS 15. However, based on the criteria established by IFRS 15 for dividing performance obligations into those performed during a period and performed at a certain point in time, the developer’s obligations under DDU agreements are classified as performed during period. Revenue from such contracts should be recognized by assessing the degree to which the obligation has been completely fulfilled. Thus, the procedure for recognizing revenue in relation to the situation under consideration is similar both when applying IFRIC 15 and when applying IFRS 15.

Based on what is stated in the situation under consideration, revenue under the DDU agreement should be recognized in the “as ready” method, even under the condition that the organization refuses to use the norms of PBU 2/2008, considering them inapplicable in this case. At the same time, despite the requirements of regulatory legal acts, recognition of revenue by developers in relation to DDU agreements using the “as ready” method is not a common practice. In this regard, it is highly likely that auditors, government bodies and other persons, when assessing the correctness of the accounting procedure chosen by the organization, will insist on the need to recognize revenue only on the date of signing the act of transferring the apartment to the shareholder or on the date of registration of the shareholder's ownership rights to the apartment or ( at the earliest) on the date of receipt of permission to put the apartment building into operation. This point of view on revenue recognition is common due to the established accounting practice of developers, although from the point of view of the requirements of regulatory legal acts on accounting (as shown above), it has no regulatory basis.

As for the reflection in the developer’s accounting of funds received from shareholders, there is a practice of using account 86 “Targeted financing”. This practice is based on a formal reading of the purpose of this account, set out in the Instructions for the application of the Chart of Accounts for accounting the financial and economic activities of organizations, approved by Order of the Ministry of Finance of the Russian Federation dated October 31, 2000 No. 94n (hereinafter referred to as the Instructions). In accordance with the Instructions, account 86 “Targeted financing” is intended to summarize information on the movement of funds intended for the implementation of targeted activities, funds received from other organizations and individuals, budgetary funds, etc. However, the use of account 86 in relation to funds received from shareholders under the DDU agreement seems incorrect for the following reasons.

Individual words in the account description cannot be taken out of context and conclusions cannot be drawn from them outside of other interrelated provisions of the Instructions. Bill 86 is included in Title VII. "Capital". Moreover, in accordance with the Instructions, the accounts of this section are intended to summarize information about the state and movement of capital of the organization. In this regard, the purpose of account 86 is limited to those receipts that do not form counter-obligations of the organization. This account is primarily intended for use by non-profit organizations. For commercial organizations, the use of this account is limited to certain specific types of revenue from shareholders (participants, owners) or from the budget on a free basis.

The relationship between the developer and the shareholder under the DDU agreement is of a reimbursable nature. As a result of receiving funds from the shareholder, the developer forms a counter obligation to him to organize the construction of an apartment building and, based on its results, transfer to the shareholder the apartment specified in the contract. These liabilities must be disclosed in the financial statements in the “Long-term liabilities” or “Current liabilities” sections of the balance sheet, depending on the specific conditions. In this case, to reflect settlements with shareholders, you should use the accounts of Section VI “Settlements” of the Chart of Accounts. This position is adhered to by the Ministry of Finance of the Russian Federation, which is confirmed by Letter of the Ministry of Finance of Russia dated 05/08/2014 No. 07-01-12/21775.

Selecting from the accounts of Section VI “Settlements” in the situation under consideration, to reflect the developer’s obligations to shareholders under the DDU agreement, it is acceptable to use account 76 “Settlements with various debtors and creditors.” At the same time (recognizing the great popularity of account 76 among accountants when reflecting any more or less non-standard calculations), based on the descriptions of accounts given in the Instructions, it seems more appropriate to use account 62 “Settlements with buyers and customers” to reflect the developer’s settlements with shareholders.

Relations between the developer and shareholders under DDU agreements are a special case of ordinary market relations between seller and buyer (customer and executor). Within the framework of these relations, the receipt by the developer of funds from the shareholder to finance shared construction is a special case of the seller (executor) receiving an advance or prepayment from the buyer (customer).

This conclusion is confirmed by Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated July 11, 2011 No. 54. In accordance with paragraph 11 of this Resolution, the provisions of the Federal Law “On participation in shared construction of apartment buildings and other real estate and on amendments to certain legislative acts of the Russian Federation” are special in relation to the provisions of the Civil Code of the Russian Federation on the purchase and sale of future things.

At the same time, the provisions of 214-FZ, as well as the provisions of ordinary DDU agreements, including those given in the appendix to the situation under consideration, do not provide for such specific conditions due to which different approaches should be used in the accounting of such agreements compared to the accounting of ordinary contracts of sale, contract or provision of services.

The specificity for accounting lies not in the peculiarities of the DDU agreement, but in the recognition of revenue as soon as it is ready, which implies diversification of the reflection in accounting of settlements with the counterparty. In particular, the reflection of revenue on the credit of account 90 “Sales” corresponds with the debit of account 46 “Completed stages of work in progress.” The indicator generated on this account represents a specific type of receivables that is not confirmed by the debtor - the so-called “unactivated receivables”. The attribution of this indicator to accounts receivable is confirmed by the Ministry of Finance of the Russian Federation in recommendations to audit organizations, individual auditors, auditors on conducting an audit of the annual financial statements of organizations for 2013 (attachment to letter dated January 29, 2014 No. 07-04-18/01) on the issue of reflection in the balance sheet data in connection with the recognition of revenue using the “as ready” method.

In cases where revenue is recognized as it is ready, the balances on accounts 46 and 62 together form the economic balance of settlements with the counterparty under the contract and show the degree of fulfillment of obligations under the contract by each party. In the case of a DDU agreement, the credit balance of account 62 shows the extent to which the shareholder has fulfilled its obligations to finance construction - how much money has been transferred to them. The debit balance of account 46 shows the extent to which the developer fulfills its obligations to organize construction - to what extent the construction of the apartment building is completed.

Both obligations are counter to each other. Therefore, the balance for each of these two accounts is disclosed only in the notes to the balance sheet, while the balance sheet itself presents the collapsed balance of both accounts. If the balance on account 62 exceeds the balance on account 46, the final credit balance is presented in the balance sheet as “Net liabilities under equity participation agreements.” If the balance on account 46 exceeds the balance on account 62, the final debit balance is presented in the balance sheet as “Accrued revenue not presented for payment.”

Based on the above, the following scheme of basic accounting records is recommended:

D 51 – K 62 received funds from shareholders

D 20 – K 60 recognized the actual costs of work performed by contractors

D 20 – K 10,60,70,02, etc. other actual costs for execution of the contract are recognized

D 46 – K 90 the share of revenue attributable to the estimated degree of completion of construction is recognized

D 90 – K 20 expenses attributable to recognized revenue are written off

D 62 – K 46 the apartment was transferred to the shareholder

As for the disclosure of information on shared construction agreements in the financial statements of the developer, here one should adhere to the Recommendations for auditing organizations, individual auditors, auditors on conducting an audit of the annual financial statements of organizations for 2007 (letter from the Department of Regulation of State Financial Control, Auditing, Accounting and Reporting Ministry of Finance of the Russian Federation dated January 29, 2008 No. 07-05-06/18).

Common mistakes

Error:

The developer reflected in the accounting the funds of the shareholders transferred to him under the shared construction agreement as revenue.

A comment:

Investor money is not revenue; funds are recognized as targeted financing.

Error:

The developer imposes VAT on the funds of shareholders under a shared construction agreement.

A comment:

Money transferred by shareholders is not subject to VAT, since shared construction projects are not taxed.

simplified tax system

When using the contract construction method, determine the tax base for the single tax in the following order.

If a developer pays a single tax on income, then the taxable base is his revenue received from the provision of services (clause 1 of Article 346.18 of the Tax Code of the Russian Federation).

If the developer pays a single tax on the difference between income and expenses, then the taxable base will be the difference between the revenue received from the provision of services and the expenses associated with this activity (clause 2 of Article 346.18 of the Tax Code of the Russian Federation). In this case, the developer has the right to take into account only those expenses that are named in paragraph 1 of Article 346.16 of the Tax Code of the Russian Federation. For more information about the procedure for accounting for expenses when simplifying, see What expenses should be taken into account when calculating the single tax on the simplified tax system.

In addition, when funds for targeted financing are received from the investor, the developer is obliged to ensure separate accounting of expenses incurred at the expense of these funds (subclause 1, clause 1.1, article 346.15, subclause 14, clause 1, article 251 of the Tax Code of the Russian Federation). For more information about this, see How to reflect non-state targeted financing in accounting. Such expenses do not reduce the tax base for the single tax (clause 17 of Article 270 of the Tax Code of the Russian Federation).

If the developer carries out construction with his own resources (i.e., performs the functions of a contractor), then he calculates the single tax in the same manner as the contractor. For more information about this, see How to record contractor expenses under a construction contract.

Answers to common questions about shared construction accounting

Question #1:

Can a developer carry out the construction of a shared construction project, thereby providing services to shareholders, if the contract does not provide for a division of the contract price into covering construction costs and remuneration for the developer?

Answer:

No, in this case there is no need to talk about the services provided by the developer.

Question #2:

Savings and cost overruns for the developer under a shared construction agreement are established for the construction project as a whole. Are savings calculated for tax purposes subject to VAT?

Answer:

This depends on the economic nature of the amount in question. If savings were created because funds to cover construction costs were not fully used, the savings are attributed to an increase in the developer's remuneration (revenue). If the contract price does not include a fee for the developer's services, the savings cannot be recognized as his revenue, and then it is not subject to VAT.

Common property

In relation to property that relates to both commercial and warehouse buildings and which cannot be divided (indivisible property), the parties must, in an additional agreement, establish the percentage of rights to this property with its further registration as shared ownership (Article 244, paragraph 2, Article 245 of the Civil Code of the Russian Federation).

Note! According to paragraph 1 of Art. 245 of the Civil Code of the Russian Federation, in the absence of stipulation in the agreement of the shares of participants in shared ownership, the shares are considered equal.

Guided by these norms of civil legislation, the investor-developer will have to, upon completion of construction, divide the expenses collected in the debit of account 08 “Investments in non-current assets” into indivisible objects that will be used in the operation of both the shopping center and the warehouse, in the proportion that will be enshrined in the specified additional agreement. If such an agreement regarding this indivisible property is not concluded, then the costs of construction of such objects, formed in the accounting records of the developer, will need to be divided in half.

Then one half of the expenses will subsequently form the cost of the corresponding share of fixed assets from the investor-customer (Debit 01 Credit 08), and the second half of the expenses will be taken into account by him when determining the financial result from this investment project when transferring the constructed objects to the investor. In other words, such fixed assets that will subsequently be operated by both the investor and the developer (perhaps these are engineering communications, an access road and external improvement objects) will be taken into account in the corresponding share on the balance sheets of both parties, which meets the requirements of clause 6 of the PBU 6/01 “Accounting for fixed assets”.

Similar chapters from other works:

Automation of accounting for a construction organization based on the technological platform of the 1C:Enterprise 8.0 software system

Analysis of accounting of economic activities of the customer-developer

Accounting for construction companies

Features of accounting for construction production by a contractor

Contractors are organizations that perform work under a contract or government contract. The contract is concluded with the customer in accordance with the Civil Code. The composition of the contractor's expenses has its own characteristics...

Accounting for construction companies

Features of accounting for construction production at the customer

The cost of construction work in the accounting records of the customer organization is reflected on the basis of the act of acceptance of completed work f. N KS-2, which is signed by the customer and the contractor...

Study of the organization of payroll accounting in construction organizations

1.1 The essence of wages and its impact on the efficiency of construction production

The labor of workers is a necessary component of the process of production, consumption and distribution of the created product. Labor and the results of labor occupy a central place in the production activities of any enterprise...

Licensing and production of fuels and lubricants

FEATURES OF ACCOUNTING AND TAXATION OF FUEL PRODUCTION

As follows from the Regulations on the Ministry of Industry and Energy of the Russian Federation, approved by Decree of the Government of the Russian Federation of June 16, 2004 N 284, this Ministry carries out legal regulation of all issues...

Determination of factors influencing the organization of accounting

2.1 Features of construction production at JSC MAPID and their impact on accounting

Construction production (or investment complex) is a system of organizations that creates real estate fixed assets necessary for the activities of organizations in all sectors of the national economy...

Features of accounting in construction

Features of accounting for construction production by a contractor

A contractor is a legal entity that performs contract work for a developer under a construction contract. Contract work is work performed by a contractor, which includes construction, installation work...

Features of accounting operations under construction contracts

Features of accounting operations under construction contracts

Features of accounting and auditing at agricultural enterprises using the example of Bulaevsky Flour Mill LLP

Features of accounting and audit of agricultural production

Features of accounting and reporting for agricultural enterprises

1.1 Features of accounting and formation of the cost of agricultural products

The methodological basis for accounting for income and expenses at enterprises, including enterprises in the agricultural industry, is set out in P(S)BU 15 “Income” and P(S)BU 16 “Expenses”. It's interesting that...

Rules for accounting for construction and installation work at the customer’s site

2.

What are escrow accounts?

An escrow account is a special bank account for secure settlements between equity holders and the developer.
Money from equity holders in the escrow account is not immediately transferred to the developer, but is blocked until the house is successfully put into operation. If the developer does not fulfill the terms of the contract, the bank returns the money in the escrow account to the buyer.

The bank acts as an independent third party that has no interest in the transaction. In some cases, a bank may also be a financial organization that provides loans to the developer and controls the intended use of funds for construction needs.

More detailed information about escrow accounts can be found in the Civil Code of the Russian Federation, articles: 860.7, 860.8, 860.9 and 860.10.

UTII

The object of UTII taxation is imputed income (clause 1 of Article 346.29 of the Tax Code of the Russian Federation). The activities carried out by the developer within the framework of the investment agreement are not transferred to UTII (Clause 2 of Article 346.26 of the Tax Code of the Russian Federation). If an organization pays UTII, then the provision of developer services under a construction investment agreement will not affect the calculation of this tax. Payers of UTII calculate this tax based on imputed income (clause 1 of Article 346.29 of the Tax Code of the Russian Federation).

Calculate taxes on the developer's activities within the framework of an investment agreement in accordance with the general or simplified taxation system.

Individual characteristics of the construction process

Despite the fact that accounting in construction in the Russian Federation is carried out on the basis of general requirements and regulations, it is characterized by a large number of individual features. The reason for the presence of these features is the specifics of the construction process. For this article, we will highlight the following as the main individual characteristics of the construction site:

• Duration of execution of contract agreements. As a result, the start of work and its completion usually belong to different reporting (including tax) periods.
• The following feature follows from the atypical duration of the work cycle: phasing. Both delivery to the customer and payment by the customer usually take place in several stages. This leads to specificity in the formation of revenue and cost.
• With regard to the formation of cost in construction, there are also a number of special techniques and methods. The main purpose of these methods is, if possible, to compensate for the uncertainty in the reliability of the assessment of the financial result of the construction project being taken into account. On the one hand, based on accounting principles, receiving advances from construction customers does not provide sufficient confidence that revenue can be determined on the basis of these advances. On the other hand, the planned cost indicators determined during the work also cannot be considered completely suitable values ​​for taking them into account in expenses when forming the financial result.

Let us examine in more detail the accounting features arising from the above aspects.