Revenue: Real Estate QAs

Revenue: Real estate

Q&As

US GAAP January 2019 _____ us/frv

Contents

Foreword ............................................................................................. 1

About this publication ............................................................................. 2

Executive summary ............................................................................... 3

A.

Scope ...................................................................................... 8

B.

Step 1: Identify the contract ............................................................. 29

C.

Step 2: Identify the performance obligations ........................................ 34

D.

Step 3: Determine the transaction price.......................................... 45

E.

Step 4: Allocate the transaction price ............................................. 58

F.

Step 5: Recognize revenue .......................................................... 65

G.

Other implementation matters .................................................... 103

Appendices ....................................................................................... 118

Index of Q&As ....................................................................................... 118

Index of examples .............................................................................. 123

KPMG Financial Reporting View ............................................................ 124

Acknowledgments .............................................................................. 125

Revenue: Real estate

1

Foreword

All change for real estate

As the 2018 effective date of the 2014 revenue recognition and other income standards fades into the rearview mirror for calendar year-end public companies, the effects of the standards are still emerging.

Because real estate companies may sell property only a few times during the year, some are still determining the effect of the new standards on their operations and accounting. As companies have delved into the details, many are finding that the standards have affected them in some way ? if not in the financial statements, then in the disclosures. Those effects have varied widely depending on the nature of their businesses and how they interact with their customers and buyers.

In December 2018, we updated our Handbook, Revenue recognition, which illustrates how the new standard applies to common transactions, provides examples about common scenarios, explains our emerging thinking on key interpretative issues, and compares the new requirements to legacy US GAAP.

This publication, now in its fifth edition, provides supplemental technical guidance on key issues when applying the new revenue and other income models to sales of real estate. We address some of the common questions about the effects of the new standards on sales of real estate, and we hope it will advance the dialogue on these and other issues. We will continue to provide the latest thinking that affects real estate companies as these and other new standards are implemented.

Kimber Bascom and Angie Storm Department of Professional Practice, KPMG LLP

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Revenue: Real estate

2

About this publication

About this publication

Purpose

The purpose of this publication is to assist you in understanding the requirements of Topic 606, Revenue from Contracts with Customers and Subtopic 610-20, Other Income--Gains and Losses from the Derecognition of Nonfinancial Assets, as they apply to real estate transactions.

This publication is intended for use by preparers and other interested parties with a working knowledge of legacy real estate sales guidance, and an understanding of the new revenue recognition and other income models.

Organization of the text

The publication is in Q&A format, and is organized into chapters that largely reflect the steps in the revenue recognition model. Our commentary refers to the FASB Accounting Standards Codification?, when excerpts are not included, where applicable. For example, 606-10-25-1 is paragraph 25-1 of Subtopic 606-10.

We include examples to explain key concepts, and we explain the changes from legacy US GAAP. The questions and answers that have been added or substantially expanded in this edition are highlighted in the Appendix.

Terminology

Unless otherwise indicated explicitly or by comparison, we use the terms `customer' and `buyer' interchangeably to refer to the purchaser in a transaction involving the sale of real estate. This is because the guidance in this publication addresses both the requirements of Topic 606 on revenue recognition from sales to customers, and the requirements of Subtopic 610-20 on recognition of gains and losses from the derecognition of nonfinancial assets in transactions with parties other than customers.

We use the terms `gain' and `gain or loss' interchangeably to refer to the income statement effect from derecognition of nonfinancial assets in the scope of Subtopic 610-20 as the transaction may result in either and is reported in other income.

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Revenue: Real estate

3

Executive summary

Executive summary

Effective date2: Early adoption2:

Public entities1

Other entities

-- First annual reporting period beginning after December 15, 2017.

-- Interim reporting periods within that annual period.

-- First annual reporting period beginning after December 15, 2018.

-- Interim reporting periods within annual reporting periods beginning after December 15, 2019.

Permitted for:

-- Annual reporting periods beginning after December 15, 2016.

-- Interim reporting periods within that annual period.

Permitted for:

-- Annual reporting periods beginning after December 15, 2016.

-- Interim reporting periods:

-- within the annual reporting period of adoption; or

-- within the annual reporting period subsequent to the annual reporting period of adoption.

Notes:

1. This includes (1) public business entities; (2) not-for-profit entities that have issued or are conduit bond obligors for securities that are traded, listed or quoted on an exchange or an over-the-counter market; and (3) employee benefit plans that file or furnish financial statements with or to the SEC.

2. An entity is required to apply the amendments in ASU 2017-05 (Subtopic 610-20) at the same time that it applies Topic 606. However, the earliest an entity may apply Subtopic 610-20 or Topic 606 is for annual and interim periods beginning after December 15, 2016.

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

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