Development properties as inventory

Misclassifying land and development cost between inventory, investment property and PP&E changes both the measurement basis (cost/NRV versus fair value) and where gains land (P&L versus OCI/fair value gains), directly affecting reported profit, leverage ratios and the ability to revalue land banks upward. Land banks are typically one of the largest balance sheet items for regional developers, making this classification highly material.

For each parcel or unit, is the documented intent held for sale, for rental, or for owner-occupation, and is this supported by a board-approved business plan? Does the project cost ledger separately capture land, design/consultancy fees, permits and construction by project or phase? Are general and administrative overheads or selling/marketing costs being kept out of capitalized project cost? If a completed unsold unit is repurposed for leasing or own use, has it been reclassified and remeasured at the lower of cost and fair value less costs to sell?

1) Classify intent at acquisition/inception for each parcel or unit: held for sale in the ordinary course of business (inventory under IAS 2), held for rental/capital appreciation (investment property under IAS 40), or owner-occupied (PP&E under IAS 16), document the basis (board-approved business plan, feasibility study). 2) Open a project cost ledger per project (or per phase/tower) that separately captures land acquisition cost, infrastructure, design/consultancy fees, construction (direct labour, materials, subcontractors), permits, and directly attributable overheads (e.g. a dedicated project management team). 3) Exclude from capitalized cost: general and administrative overheads not attributable to a specific project, selling and marketing costs, and abnormal amounts of wasted materials, labour or other resources. 4) For mixed-use towers or multi-unit buildings, establish a per-unit or per-unit-type costing methodology (e.g. by saleable area or relative value) so cost of sales matches revenue unit by unit at handover. 5) Reassess classification if intent changes (e.g. an unsold completed unit is repurposed for company use or leased out) and reclassify prospectively at the lower of cost and fair value less costs to sell, per the applicable standard's transfer guidance.

Measurement base: development property inventory is measured at the lower of cost and net realizable value (NRV); cost comprises land, construction, directly attributable design/consultancy fees, permits, and eligible borrowing costs (per IAS 23) during active development, plus overheads directly attributable to bringing the project to its saleable condition. Subsequent measurement: cost accumulates until the unit is sold; at each reporting date compare carrying cost per project/unit type to estimated selling price less remaining costs to complete and sell (NRV test, see RECON-008); write down if NRV is lower, and reverse (up to original cost) if conditions improve. On sale, the unit's allocated cost transfers from inventory to cost of sales matching the revenue recognition pattern (progressively if over-time, in full at handover if point-in-time).

Present development properties within inventory, split between current and non-current only if the operating cycle is clearly identifiable and disclosed (many developers present a single non-classified statement of financial position given a long operating cycle); disclose the accounting policy for cost components capitalized (land, construction, borrowing costs, overheads) and the basis of cost allocation to units; disclose the carrying amount of inventory by category (land bank, work in progress, completed unsold units); disclose any amounts pledged as security for project finance.

• Classifying land held for sale as PP&
• E or investment property to enable revaluation gains that IAS 2 inventory accounting would not permit
• loading head-office/general administration costs into project cost, inflating inventory and understating current-period expenses
• failing to build a per-unit costing model for mixed towers, resulting in arbitrary or FIFO-based cost releases that don'
• t match specific units sold
• capitalizing selling and marketing costs (e.g. show-unit fit-out treated as a project cost rather than a period cost, unless it separately qualifies as a contract cost asset under IFRS 15)
• not reassessing classification when a completed unsold unit is instead leased out (which should trigger a transfer to investment property at the lower of cost and fair value less costs to sell).