FINANCIAL
COMMITTEE
REPORTING
STANDARDS
IMPLEMENTATION
FRSIC Draft Consensus D15
Treatment of Land Cost when Revenue is Recognised Over Time by Measuring
Progress Using Input Method
Comments to be received by 22 April 2016.
Preamble
FRSIC Draft Consensus D15 “Treatment of land Cost when Revenue is Recognised Over Time by
Measuring Progress Using Input Method” is issued by the Financial Reporting Standards
Implementation Committee (“FRSIC”) of the Malaysian Institute of Accountants (“Institute”) for
comment only. Comments on the draft Consensus should be submitted in writing so as to be received
by 22 April 2016.
All responses will be put on the public record unless the respondent requests confidentiality.
Comments should be addressed to:
The Chairman
Financial Reporting Standards Implementation Committee
Malaysian Institute of Accountants
Dewan Akauntan
2 Jalan Tun Sambanthan 3
Brickfields
50470 Kuala Lumpur
Malaysia
Phone: +60 3 2279 9200
Fax:
+60 3 2273 1016
E-mail address: frsic@mia.org.my
Website address: http://frsic.mia.org.my
Invitation to Comment
FRSIC has approved the release of FRSIC Draft Consensus D15 for distribution to the members and
member firms of the Institute, regulators, users and other interested individuals and organisations for
comments.
There is no specific question raised on the proposed FRSIC Consensus. FRSIC, however, invites
interested parties to comment on any aspect of the consensus reached in the proposed FRSIC
Consensus. Comments are most helpful if they indicate specific paragraph to which they relate,
contain a clear rationale and, where applicable, provide a suggestion for alternative wording.
The draft Consensus contained herein is issued as part of the Institute’s initiatives to promote best
practices in compliance with the applicable standards in financial accounting.
The Working Group
The Working Group on this FRSIC Consensus is headed by a FRSIC member and comprised the
following representatives from the accountancy profession:
Thong Foo Vung, Project Manager (KPMG)
FRSIC Draft Consensus D15
Cheong Thoong Farn (Deloitte)
Siew Kar Wai (PwC)
Stephen Oong Kee Leong (Ernst & Young)
Tan Bee Leng (Malaysian Accounting Standards Board)
Tan Khoon Yeow (BDO)
Tham Hon Sin (Crowe Howarth)
FRSIC would like to extend its gratitude to the Working Group members for their participation and
valuable contribution throughout the process.
© Malaysian Institute of Accountants
Malaysian Institute of Accountants
Dewan Akauntan, 2 Jalan Tun Sambanthan 3 Brickfields, 50470 Kuala Lumpur,
2 of 5
Malaysia
[Web] http://www.mia.org.my [Phone] + 6032279 9200 [Fax] + 6032274 1783
FRSIC Draft Consensus D15
FRSIC DRAFT CONSENSUS D15
TREATMENT OF LAND COST WHEN REVENUE IS RECOGNISED OVER TIME
BY MEASURING PROGRESS USING INPUT METHOD
FRSIC Consensus is guidance issued by MIA and shall be regarded as best practice. It should be
read in conjunction with the respective applicable accounting standards.
Members of MIA are expected to observe compliance with the consensus issued. In exceptional
circumstances where departure is necessary, members shall be prepared to justify the departure.
FRSIC Consensus need not be applied to immaterial items. Nothing in the FRSIC Consensus is
to be construed as amending or overriding the accounting standards or other statements adopted
or issued by the Malaysian Accounting Standards Board (“MASB”) and other relevant laws.
Background
1
Paragraph 39 of MFRS 15 states that “For each performance obligation satisfied over time in
accordance with paragraphs 35–37, an entity shall recognise revenue over time by measuring
the progress towards complete satisfaction of that performance obligation. The objective when
measuring progress is to depict an entity’s performance in transferring control of goods or
services promised to a customer (i.e. the satisfaction of an entity’s performance obligation).”
2
Paragraph 41 of MFRS 15 explains that “Appropriate methods of measuring progress include
output methods and input methods”. Paragraph 42 of MFRS 15 further states “When applying a
method for measuring progress, an entity shall exclude from the measure of progress any
goods or services for which the entity does not transfer control to a customer. Conversely, an
entity shall include in the measure of progress any goods or services for which the entity does
transfer control to a customer when satisfying that performance obligation.” Paragraph 33 of
MFRS 15 explains that “Control of an asset refers to the ability to direct the use of, and obtain
substantially all of the remaining benefits from, the asset.”
Scope
3
This Consensus applies to an entity engaged in property development activities (“property
developer”) where:
a) it has determined that the contract is within the scope of MFRS 15 by satisfying all the
criteria in paragraph 9 of MFRS 15;
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FRSIC Draft Consensus D15
b) the land and the development of property are a single performance obligation;
c) it meets the criteria to recognise revenue over time in accordance with paragraph 35(c) of
MFRS 15; and
d) it uses costs incurred relative to total estimated costs (i.e. input method) to measure the
progress towards complete satisfaction of a performance obligation, following the application
guidance in paragraphs B18 and B19 of MFRS 15.
The Issue
4
Paragraph B18 of MFRS 15 states that “Input methods recognise revenue on the basis of the
entity’s efforts or inputs to the satisfaction of a performance obligation (for example, resources
consumed, labour hours expended, costs incurred, time elapsed or machine hours used)
relative to the total expected inputs to the satisfaction of that performance obligation.”
5
As land is used in property development, i.e. incurred as cost to fulfil the contract, it is unclear
whether land cost should be reflected in input methods when measuring progress towards
complete satisfaction of performance obligation.
6
Some are of the view that the land cost should be included in the measure of progress using
input methods if buyer obtains control over the land. Paragraph 33 of MFRS 15 states that
“Control of an asset refers to the ability to direct the use of, and obtain substantially all of the
remaining benefits from, the asset.” It further provides that the benefits of an asset are the
potential cash flows (inflows or savings in outflows) that can be obtained directly or indirectly in
many ways, such as by:
a) using the asset to produce goods or provide services (including public services);
b) using the asset to enhance the value of other assets;
c) using the asset to settle liabilities or reduce expenses;
d) selling or exchanging the asset;
e) pledging the asset to secure a loan; and
f) holding the asset.
7
They argue that the buyer obtains control over the land due to the following:
a) the buyer could sell to another party its right under the Sales and Purchase Agreement
(“SPA”), hence, effectively sells the underlying land and construction work-in-progress (i.e.
paragraph 33(d) of MFRS 15); and
b) the buyer could pledge the land to secure bank borrowings (i.e. paragraph 33(e) of MFRS
15).
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Malaysia
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FRSIC Draft Consensus D15
8
Others are of the view that the land cost should be excluded as it does not reflect the work done
on development of property.
Consensus and Basis of Consensus
A.
Land cost is excluded in the measure of progress when input method is used
9
As stated above, paragraph 39 of MFRS 15 explains that the objective when measuring
progress towards complete satisfaction of a performance obligation satisfied over time is to
depict an entity’s performance in satisfying its performance obligation. Paragraph BC160 of
MFRS 15 further states that to meet the objective of depicting the entity’s performance, an entity
would need to consider the nature of the promised goods or services and the nature of the
entity’s performance. That is, an entity should consider the nature of its overall promise for the
combined performance obligation and performance required to completely satisfy the entire
performance obligation.
10
In the case of property development activities, FRSIC is of the view that the nature of the
developer’s overall promise for the combined performance obligation is the development of
property. The progress towards complete satisfaction of the performance obligation is reflected
by the work done in relation to the development of property. Accordingly, when using a costbased input method, land cost shall be excluded in the measure of progress towards complete
satisfaction of performance obligation.
B.
Recognition of land cost as an expense when revenue is recognised over time when input
method is used as a measure of progress
11
Land cost that is excluded in the measure of progress as required by paragraph 10 above, shall
be recognised as an expense in the period consistent with the related revenue from the contract
with the customer and thus is recognised over time.
Issuance date of this Consensus
12
This [draft] Consensus is issued on [date to be set upon final approval by the Institute’s Council].
References

MFRS 15 “Revenue from Contracts with Customers”
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[Web] http://www.mia.org.my [Phone] + 6032279 9200 [Fax] + 6032274 1783