Multiple units and project phases as separate performance obligations

When one sale and purchase agreement bundles a plot, a villa shell and a finishing package, or several units across phases, failing to test each promise for distinctness can defer revenue recognition on already-complete and transferable elements, or conversely recognize revenue too early on interdependent elements. Master-community and multi-phase developments are common regionally, and failure to unbundle correctly is a frequent inspection finding with a direct, potentially material impact on the timing of reported revenue.

Is each promised unit, plot, or phase in a bundled contract capable of being distinct and distinct within the context of the contract, or genuinely interdependent? Is the total transaction price allocated across distinct performance obligations based on relative standalone selling prices, not the instalment/payment schedule or build cost? Are plots or shells with independent title/possession transfer recognized as revenue at that point, rather than deferred to final project handover? When the transaction price or cost estimate changes, is the revised amount reallocated across remaining obligations on the original standalone-selling-price basis?

1) List every promised good or service in the master sale and purchase agreement (land plot, villa shell, finishing package, or multiple units across phases). 2) For each promise, test whether it is capable of being distinct (the customer can benefit from it on its own or with readily available resources) - a completed plot with title transferable now is normally capable of being distinct from an unbuilt villa shell. 3) Test whether each promise is distinct within the context of the contract (not highly interdependent or integrated with the other promises) - genuinely separate handover points with independent risk transfer support distinctness; a single integrated construction process delivered as one unit typically does not. 4) Where both tests are met, account for each unit or phase as a separate performance obligation; do not default to a single obligation merely because one contract number or one SPA was issued. 5) Allocate the total transaction price to each distinct performance obligation based on relative standalone selling prices - never based on the cost to build each element or the contractual instalment/payment schedule. 6) Recognize revenue for each performance obligation as control transfers - at a point in time or over time based on the standard over-time criteria applied separately to each obligation.

Measurement base: the total transaction price is allocated to each distinct performance obligation in proportion to its relative standalone selling price at contract inception; standalone selling price is the observable price at which the entity sells that good or service separately, or, if not observable, an estimate using an approach consistent with the standard's guidance. Revenue for each obligation is subsequently recognized as control transfers: at a point in time (e.g., land plot title/possession transfer) or over time (e.g., a villa shell where the customer controls the underlying land and the contractor enhances an asset the customer controls, assessed using an appropriate input or output measure of progress). Subsequent measurement/re-estimation: if total estimated costs or the transaction price change, reallocate the revised transaction price across the remaining distinct obligations on the same relative standalone selling price basis established at inception, adjusting revenue prospectively for the obligations not yet complete.

Disclose the performance obligations identified in typical bundled contracts (plot, shell, finishing, or units by phase) and the basis for concluding they are distinct; disclose the method and key assumptions used to estimate standalone selling prices where not directly observable; disclose the transaction price allocated to each type of performance obligation and the pattern and timing of revenue recognition for each; disclose contract balances (contract assets/liabilities) and how they relate to the different obligations' completion status; disclose the judgment applied in distinctness assessments where phases or units are only conditionally separable.

• Treating a multi-phase master sale as a single performance obligation and deferring all revenue to final handover, even though earlier phases are complete and separately transferable now
• allocating the contract price by the contractual instalment/payment schedule instead of relative standalone selling prices, which misstates the timing and amount of revenue in each period
• assuming distinctness automatically because units are listed separately in an appendix, without testing whether they are genuinely separable in the contract context
• failing to reassess distinctness and allocation when a contract is modified mid-project
• using cost-to-complete of each element as a proxy for standalone selling price instead of an actual or properly estimated selling price.