A1 DEVELOPERS LTD

FINANCIAL ACCOUNTING
CASE STUDY
GROUP 8

Mrinalini Singh (1511337)

Punit P Parekh (1511345)
Pramod Rangarajan (1511341)
Shiva Rohit(1511356)

A1 DEVELOPERS LTD

CONTENTS
Sr. No.

Description

Page No.

Summary of Information

Activity 1 : Purchased Land for Rs. 10 Crore on Apri1, 2013.

Activity 2 : Firm Bookings were made for 200 units of value Rs. 200 Crores and Rs.
36 Crores were received by 31st March, 2014. There was stage wise payments for
the balance.

Activity 3 : The total estimated cost of the project construction was Rs, 390 Crores
including interest of Rs. 4.00 Crores. The estimated cost included Rs 10 Crores on
creation of common facilities like swimming pools, parks and recreation centres.

Activity 4 : As on 31st March, 2014 the company had incurred Rs. 160 Crores on
this project including interest of Rs. 1.60 Crores.

Activity 5 : The company had completed construction of ten residential units to

be used as model flats for exhibition. These flats were duly furnished and
equipped to represent a modern residential unit with all facilities. Due to popular
demand the company had auctioned 5 of these flats for a consideration of Rs.
7.5 crore lakhs on March 31, 2014.

Disclosures

References

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A1 DEVELOPERS LTD
Summary of Given Information
Name of the company:
Domain:
Head office:
Accounting Period:
Estimated number of total units to be constructed:
Estimated total revenue from 500 units:
Location of construction work:

A1 Developer Ltd
Industrial Property Developers, Real Estate
Bombay
April 2013 to March 2014
500 units
Rs. 500 Cr
Calcutta

Activity 1: Purchased Land for Rs. 10 Crore on Apri1, 2013.

Land purchased can be classified as a fixed asset or as an inventory. In the case of real estate, from the
general accounting policies of companies like Brigade Group, DLF etc., it was observed that companies
classify land and constructed housing units as asset if these are being leased or given on rent. In case of
land and housing units which are to be sold for real estate, the land and units are considered as inventories.
The inventories are valued as under:
a) Building Material, Stores, Spares parts etc. are valued at cost using FIFO method.
b) Completed Units (Unsold) are valued at lower of cost or net realisable value.
c) Project/Contracts work in progress are valued at cost
d) Land is valued at lower of cost or net realisable value.
The company may finance this via cash, credit or a mixture of options. Here it is assumed that the company
paid Rs. 10 Crore in cash and added Land in inventory worth Rs. 10 Crore.

Activity 2: Firm Bookings were made for 200 units of value Rs. 200 Crores and Rs. 36
Crores were received by 31st March, 2014.
No of units booked
Cash received from customer

200 units
Rs 36 Crores

The money received from bookings can be classified as revenue or as a liability. As per Ind AS-11, AS-11,
revenue can be recognized using percentage of completion method at end of accounting period. Also,
revenue should be recognized when majority of risks and ownership has been transferred to owner. As
customers have made a preliminary booking it is assumed that currently Rs. 36 Crore is classified as
Advance from Customers under Other Liabilities, as per naming conventions in the Annual reports of
Brigade Group, Ansal Housing. This will be further re-evaluated using percentage of completion method
once stage of completion is identified in further sections of the report.
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A1 DEVELOPERS LTD
Activity 3: The total estimated cost of the project construction was Rs, 390 Crores
including interest of Rs. 4.00 Crores. The estimated cost included Rs 10 Crores on
creation of common facilities like swimming pools, parks and recreation centres.
Cost of creation of common facilities

Rs 10 Crore

Interest

Rs 4 Crore

Other Project Expenses

Rs 376 Crore

Total Estimated Project Construction Cost

Rs 390 Crore

Cost of Land to be used for Project

Rs 10 Crore

Total Estimated Project Cost

Rs 400 Crore

Activity 4: As on 31st March, 2014 the company had incurred Rs. 160 Crores on this
project including interest of Rs. 1.60 Crores.
Cost incurred in project

Rs 158.40 Crore

Interest

Rs 1.60 Crore

Total Incurred Project Cost

Rs 150 Crore

Cost of Land in use for Project

Rs 10 Crore

Total Incurred Project Cost

Rs 160 Crore

Here it is not clear if 160 crore is total project cost or total project construction cost incurred. For the purpose
of this analysis it is assumed that Rs 160 crore is the total project cost incurred.
As Land is being used in the Project currently we remove from inventory and add it as an expense to
project construction as per GN(A) 23.
From AS7 and Investopedia, it is observed that Construction interest that is incurred on the construction of
a structure intended for rental or business use is not deductible at the time that it is paid. This type of interest
is added to the cost basis of the building instead Hence we are considering all the construction interest as
part of construction cost rather than dealing with it individually.

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A1 DEVELOPERS LTD
Activity 5: The company had completed construction of ten residential units to be
used as model flats for exhibition. These flats were duly furnished and equipped to
represent a modern residential unit with all facilities. Due to popular demand the
company had auctioned 5 of these flats for a consideration of Rs. 7.5 crore lakhs
on March 31, 2014.
As per IndAs-11, when the outcome of a construction contract can be estimated reliably, contract revenue
and contract costs associated with the construction contract shall be recognised as revenue and expenses
respectively by reference to the stage of completion of the contract activity at the end of the reporting
period. In the case of a fixed price contract, the outcome of a construction contract can be estimated
reliably when all the following conditions are satisfied:
a) Total contract revenue can be measured reliably;
b) It is probable that the economic benefits associated with the contract will flow to the entity;
c) Both the contract costs to complete the contract and the stage of contract completion at the end
of the reporting period can be measured reliably; and
d) The contract costs attributable to the contract can be clearly identified and measured reliably so
that actual contract costs incurred can be compared with prior estimates.
The stage of completion of a contract may be determined in a variety of ways. The entity uses the method
that measures reliably the work performed. Depending on the nature of the contract, the methods may
include:
a) The proportion that contract costs incurred for work performed to date bear to the estimated total
contract costs;
b) Surveys of work performed; or
c) Completion of a physical proportion of the contract work.
Considering method (c) it can be estimated that 10 out of 500 units were completed. For method (b), no
survey information is available in case. Finally, method (a) is chosen and we estimated the percentage of
completion to be:
Stage of Completion = (Total Incurred Project Cost / Total Estimated Project Cost) * 100
= (160/400) *100
= 40%
Considering that 10% of agreement amount has been realized and 25% of construction cost has been
realized we now use this 40% stage of completion in our revenue recognition. In the inventory we add 5
units as Completed Units (Unsold) at lower of cost or net realisable value and also add the remaining cost
that has not been incurred as Project work in progress at cost.
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A1 DEVELOPERS LTD
Disclosures
Summary of financial data (All figures in Crores)
Initial amount of revenue agreed
Variation
Total contract revenue (500+2.5)
Contract costs incurred upto reporting date
Contract cost to complete (400-160)
Total estimated contract costs
Estimated profit = (502.5-400)
Stage of completion

500
2.5
502.5
160
240
400
102.5
40%
P&L

(Alternative 1)
Revenue- (0.4*502.5)
Expenses
Profit

(Alternative 2)
Revenue- (0.4*495)+7.5
Expenses
Profit

201
160
41

205.5
160
45.5

Contract disclosures
Contract revenue recognized
Contract expenses recognized
Expected losses
Recognized profits less losses

201
160
0
41

Contract costs incurred

Proportionate cost ((10/500)*160)
WIP to be carried forward (160-3.2)

Contract revenue recognized

Contract expenses recognized
Expected losses
Recognized profits less losses

205.5
160
0
45.5

Contract Revenue

205.5
87.5
118
205.5

160
3.2
156.8

Contract Revenue
Progress Billings
Unbilled contract revenue
Advances

201
87.5
121

References
1.
3.
5.
7.

AS-7
Ind AS-11
Brigade Group Annual Report 2013-14
Ansal Housing Annual Report 2013-14

2.
4.
6.
8.

Page 5 of 5

AS-11
GN(A) 23
DLF Group Annual Report 2014-15
http://www.investopedia.com/