A developer of Real Estate is in the process of undertaking construction activities which may require more than 3 years to complete the construction. If he has completed 15% of the total construction and the first financial year is completed. He has made advance booking. Is he liable to book profit upto this stage of completion of construction.
Charging of Income Tax in case of a Developer of Real Estate when construction is in progress and year ends.?
I don't think he's legally forced to, but he should -
Under U.S. GAAP rules revenue is recognized when 2 conditions are met: 1. Completion of earnings (if the work is done completely) 2. assurance of payment (probability of payment).
However, for construction company's the contracts take much longer (years) to complete and if the company wants to show the revenue, they can use the PERCENTAGE OF COMPLETION METHOD. This can only be done for the long term contracts (over 1 year), and is based by the percentage completed, like your example. Just be careful to accurately assess the percentage that is finished. Under this method, he will also report his percentage of expenses.
Above, I said he should because this will show that the business is making money. Although you will have to pay the taxes for whatever profit is made, you actually save because you'll probably be in a lower tax bracket. (ex: $100,000 profit on year 3 as opposed to $33,333 each year for 3 years means the tax bracket is actually less).
This revenue recognition problem is becoming an important issue, especially in international accounting standards.
song meanings
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment