Sitting in the office is so yesterdayMay 27, 2015 4:49
Will Emaar change the way it records the money flowing in?
A recent notice from an international finance committee aims to bring uniformity in revenue recognition among property firms
August 27, 2008 4:29 by kippreport
The International Financial Reporting Interpretations Committee (IFRIC), which reviews accounting issues, and issues international guidelines, recently came out with a new notification, IFRIC 15. The notice aims to introduce uniformity among property development companies in terms of their revenue recognition for the sale of units. Currently companies use different systems to record revenues, including the percentage-of-completion system. And The Business Weekly says that’s the method Emaar is currently using.
While most property development companies in the UAE follow the method of recognizing revenue and profit only on completion of their projects, Emaar has been following a percentage-of-completion method, whereby the company has been declaring revenue and profit as the projects progress.
An official document from Emaar Properties explains how the company has booked revenues [as of May 2008] in some UAE-based projects.
Revenue booked so far
Downtown Burj Dubai is a $20bn flagship project which is scheduled to be completed by 2014. It is a mixed-use 500-acre community combining commercial, residential, hotel, entertainment, shopping, and leisure projects. While 14 percent of this project is already developed, 31 percent is under development and 75 percent of the units are already sold. According to the Emaar document, only 18 percent of the revenue from this is recognized so far in the income statements of the company.
In the case of Dubai Marina, one of the largest waterfront developments of its kind in the region, the value of the project is estimated at around $4.3bn. The total number of freehold units is 5,029, and almost 56 percent of them have already been developed. The remaining 44 percent are under development and the project will hopefully be completed next year.
While 86 percent of the units are already sold, 59 percent of the development’s total revenue has been recognized.
In the Arabian Ranches project, valued at $2bn, 92 percent of the units are already developed. Seven percent of the development is under development. Against sales of 98 percent of the units, 74 percent of revenue recognition has been declared.
In the $3.3bn Umm Al Quwain Marina project, which is scheduled to be completed in 2013, only 3 percent of the development is complete, and the revenue recognition is declared to the extent of only one percent.
Though The Business Weekly sent queries to Emaar more than a week ago on how the company proposes to address the new directive, the company didn’t respond.
First seen in The Business Weekly.