A real estate developer registered in a UAE Free Zone is constructing a mixed-use residential and commercial building using third-party contractors. Construction contracts may provide for payments by milestone, by phase, or as a lump sum on final completion.
Developers frequently ask whether contractor costs should be recognised progressively as work is performed, or only upon completion of the entire project. 4 questions arise.
A: Contractor costs are generally recognised progressively as the work is performed — not deferred until project completion or until a final completion certificate is issued.
Under IAS 2, a development property held for sale is measured at cost, which includes all directly attributable costs incurred to bring the asset to its present condition. Contractor costs form part of this cost and are capitalised to the development asset as each element of work is carried out.
The payment schedule set out in the construction contract does not determin...