Real Estate Accounting Guide 2022 - Deloitte US

Real Estate Accounting Guide 2022

March 2022

Real Estate Accounting Guide 2022

Contents

Foreword 3 Accounting of real estate investment 4

1. Investment property ? definition 6 2. Acquisition of investment property 8 3. Measurement of investment property at acquisition or during construction 16 4. Measurement of investment property after acquisition or construction (valuation models) 22 5. Lease income 32 6. Lease incentives 37 7. Initial direct costs incurred in obtaining an operating lease 39 8. Accounting for disposals 41 9. IFRS Accounting Standards versus local Generally Accepted Accounting Principles 46

Valuation of real estate 51

1. Appraiser and valuation report 54 2. Basis of real estate valuation for financial reporting purposes 54 4. Property valuation verification 57 5. Impact of ESG on valuation 60 6. Impact of COVID-19 on the real estate market and valuations 60

Tax issues in real estate market 61

1. Poland 63 1.1. Acquisition or construction phase 63 1.2. Development of the real-estate investment by the investor 65 1.3. Operation and commercialisation phase, leasing of the real-estate property 68 1.4. Exit from Investment 73

2. The Czech Republic 76 2.1. Development Phase 76 2.2. Operating and commercialisation phase 77 2.3. Exit from the investment 79 2.4. Czech real estate: tax key points 79

3. Romania 80 3.1. Acquisition and development phase 80 3.2. Acquisition of land ? tax matters 82 3.3. Operating and commercialisation phase 84 3.4. Tax matters relating to the operational stage 85 3.5. Key aspects during the disposal stage 85 3.6. Tax matters related to the structuring / stages of a transaction 86 3.7. Exit from the investment 88 3.8. Romanian real estate: key points 88

4. Hungary 90 4.1. Development phase 90 4.2. Development 91 4.3. The operating and commercialisation phase, leasing of the real property 91 4.4. Exit from the investment 93

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Real Estate Accounting Guide 2022 | Accounting of real estate investment

Foreword

Dear Readers, We are more than pleased to announce that the seventh edition of the Real Estate Accounting Guide has just been released. It offers both key theoretical considerations and real-life examples illustrating issues specific to the industry, which pose a challenge to the majority of the accounting functions of RE companies across Central Europe. We truly believe that our publication will facilitate the assessment of risks associated with your real estate transactions. We also hope that the Guide will make it easier for you to close future reporting periods not only faster but also more efficiently, in addition to ensuring that the information contained in your financial statements and reports is reliable and comparable, in line with the highest market standards. The accounting part of our publication has been prepared based on the International Financial Reporting Standards (IFRSs). We also examine some important tax issues typical for the real estate industry, with a focus on four countries, namely Poland, the Czech Republic, Romania and Hungary, in addition to exploring the topic of valuation. The seventh edition of the Guide presents the core IFRS requirements which affect the reporting process at real-estate companies. It offers a glimpse into changes in tax regulations applicable to the sector as well. We believe that you will find our publication particularly useful and will appreciate all your comments and suggestions which could help us suit future editions of the Guide to your needs and expectations to the greatest extent possible. Enjoy your reading! Ewelina Dufrat Director, Audit & Assurance, Real Estate Sector

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Brochure / report title goes here | Section title goes here

Real Estate Accounting Guide 2022

Part 1

Accounting of real estate investment

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Real Estate Accounting Guide 2022 | Accounting of real estate investment

Introduction

The accounting part of the guide will focus on selected topics related to recognition, measurement, derecognition and disclosures specific to real estate companies. The structure of the guide corresponds to particular stages of life of an investment property: from construction or acquisition through the operating phase until disposal. This publication covers accounting principles set out in the IFRS Accounting Standards. In addition, at the end of the accounting part of the guide, we will highlight key differences between the IFRS Accounting Standards and local Generally Accepted Accounting Principles that are applicable in selected Central European countries. This publication will specifically cover the provisions of IAS 16, IAS 23, IAS 36, IAS 37, IAS 40, IFRS 3, IFRS 5, IFRS 13 and IFRS 16 that are particularly relevant to real-estate companies. The guidance in this publication is derived from Deloitte's iGAAP on DART publication as at January 31st, 2022. as listed in the Bibliography on page 96. The Deloitte Accounting Research Tool is a comprehensive online library of accounting and financial disclosures literature. iGAAP on DART allows access to the full IFRS Accounting Standards, linking to and from: Deloitte's authoritative, up-to-date, iGAAP manuals which provide guidance for reporting under IFRS Standards; and Model financial statements for entities reporting under IFRS Accounting Standards. In addition, our Beyond the numbers volume of iGAAP provides guidance on disclosure requirements and recommendations which businesses must consider in light of the broader environmental, social and governance matters which can significantly drive the value of an entity. To apply for a subscription to DART, click here to start the application process and select the iGAAP package. For more information about DART, including pricing of the subscription packages, click here. All practical examples cited in this publication use CU (meaning Currency Unit) as a currency.

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