WIP account structure for condominium projects, with checklist

Introduction

Condominium development requires heavy investment and a long construction period. A clear work in progress (WIP) account structure is therefore central to cost control, financial reporting and compliance with standards, so that costs and revenue are recognised correctly in line with the transfer of units to customers.

1. Overview of the six main account groups

2. Details of each account

2.1 Account 11010 WIP-Land

Covers the cost of acquiring land and preparing it for construction. Land held for development and sale is inventory under TAS 2.

• Land purchase price under the sale and purchase agreement
• Ownership transfer fees, Specific Business Tax (SBT) and stamp duty borne by the company when acquiring the land
• Survey fees, soil tests, title deed checks and site investigation
• Demolition of existing structures and site clearance costs
• Legal adviser fees for checking the status of the land and negotiating the purchase contract

2.2 Account 11020 WIP-Hard Construction

Costs that create the physical structure of the building, and which are usually the largest share of the investment

• Main contractor fees, recorded by progress billing or milestone
• Foundation work, piling, structural work and façade work
• MEP (mechanical, electrical, plumbing) work in common areas
• Infrastructure work such as internal roads, public electrical systems, water supply, gardens and landscape
• Other subcontractors who are a direct part of the construction work

Fit-out of units delivered fully fitted is generally a cost of that unit. Design fees should be recorded in account 11030.

2.3 Account 11030 WIP-Soft Costs

Costs necessary to enable construction but that do not directly create the building itself

• Architectural design fees, including schematic design, design development and construction drawings
• Engineering fees (structural, MEP, civil) and interior designer fees
• Project manager and quantity surveyor fees
• Building permit application fees, EIA reports and plan certification fees
• Project-specific insurance

Head office overhead not directly related to the project must be recorded immediately as SG&A

2.4 Account 11040 WIP-Borrowing Costs

TAS 23 requires borrowing costs directly attributable to a qualifying asset to be capitalised. A qualifying asset is one that necessarily takes a substantial period of time to get ready for use or sale. Condominium projects generally fall within this definition.

• Interest on a project loan used directly for construction
• Fees such as commitment fees and front-end fees that are included in interest under the effective interest method
• Specific loan: capitalise actual interest less investment income earned on the temporary investment of that loan
• General loan: apply the weighted average rate to the project's expenditure

2.5 Account 11050 Costs of Obtaining Contracts

TFRS 15 paragraph 91 requires incremental costs of obtaining a contract, which would not have been incurred if the contract had not been obtained and which are expected to be recovered, to be recognised as an asset and amortised systematically in line with the transfer of goods. This account is separate from construction costs.

• Agent commission paid to an external agent when a sale closes
• Sales referral fees paid to a person who refers a customer whose sale closes successfully
• Sales staff commission paid only when a sale closes

Salaries or bonuses paid whether or not a sale closes are not incremental costs and must be expensed immediately

1. When a sale closes and a commission obligation arises: Dr 11050 / Cr 21000 Accrued Commission
2. When actually paid: Dr 21000 / Cr 10000 Cash
3. When revenue is recognised on transfer of the unit: Dr 50134 Commission Expense / Cr 11050

2.6 Account 11060 Costs of Fulfilling Contracts

TFRS 15 paragraph 95 applies to costs of fulfilling a contract that are not within the scope of other standards such as TAS 2, when they relate directly to a contract, generate resources used in delivery, and are expected to be recovered. Rectification work after transfer under warranty should be considered under a separate provision policy. In most Thai condo projects this account may not be used; consult the auditor before activating it.

3. Classification table by event

4. WIP Capitalisation Checklist

Use this to check whether each item should be a project cost or an expense. The classification result is "Include in WIP", "Expense" or "Review", which means discussing it with the auditor or CFO before recording.

Construction, civil works and professional fees

Sales gallery, show unit and selling

Land, finance costs and personnel

Audit adjustments

Three questions before deciding to capitalise

• Was this cost incurred directly to acquire, construct or bring the project to a condition ready for sale? If not, expense it.
• Will this cost be recovered through sales of the project, and is it part of the asset delivered? If not, expense it.
• Is there evidence, such as an invoice, contract or approval, that identifies the cost with the project or contract? If not, expense it or wait for the documents.

5. Conclusion

Organising the accounts into six groups helps manage costs systematically, based on three principles. First, separate costs clearly by the nature of the activity so that each stage can be analysed. Second, understand the incremental cost and costs to fulfil principles of TFRS 15 so that accounts 11050 and 11060 are kept separate from construction costs. Third, strictly control the capitalisation of interest under TAS 23, including the conditions for commencement, suspension and cessation.

A sound chart of accounts from the start of the project, a clear recording policy and regular review by the auditor will ensure that the financial statements reflect the true economic position.