Part 2: Accounting during the project start-up stage

Chapter 4 Land acquisition and recording land cost

Land is the starting item of project cost and accounts for roughly 20–35% of total cost. Under TAS 2, land cost is the purchase price plus expenditure that brings the land to a condition ready for development. This includes the share of transfer fees borne by the company, land purchase brokerage fees, legal fees for title checks, survey fees, site clearance costs and soil testing costs. Costs of searching for plots that are not purchased, market research costs and general overheads cannot be included.

The recording logic is to debit land held for development at total cost and credit cash, payables and withholding tax (WHT) payable. If the company pays SBT on the seller's behalf and then deducts it from the price, this is treated as part payment of the purchase price, not as additional cost. The allocation of fees between the parties must be stated clearly in the contract and supported by documents.

Where the purchase is financed by a loan, the principal is a liability, and loan arrangement fees are included in the effective interest rate under TFRS 9. Interest can be capitalised only once real development activity has begun under TAS 23, for example when a design contract is signed or an EIA is filed. Before that, it is an expense. For an instalment purchase with a significant financing component, record the land at the cash price and recognise the difference as interest over time.

A land swap measures the land at fair value: debit land and credit contract liabilities, then recognise revenue and cost of sales when units are transferred to the former owner. When land is contributed to a JV, the joint venture company records it at fair value against equity. In both cases there are tax consequences that must be planned before signing.

Chapter 5 Pre-development costs

Between buying the land and starting construction, a large amount of expenditure is incurred, and how it is classified directly affects that year's profit. There are three main criteria: it relates directly to an identifiable project, it is necessary to make the asset ready for sale, and it can be measured reliably.

Items that can be capitalised include architect and engineer design fees, EIA preparation fees, fees for building permits and land allocation permits, direct project management costs, and environmental monitoring costs incurred during construction. Items incurred after the asset is put into use are expensed in the period. Items that are period costs, even when incurred in this stage, include salaries of executives and accounting staff, advertising, launch events, market research, audit fees, general travel costs, and interest during periods with no development activity.

Feasibility study costs require judgement. The handbook recommends capitalising them only for projects that are approved and proceed, and expensing market study costs. The point at which capitalisation begins should be agreed with the auditor. If a project is cancelled, all accumulated costs must be written off as an expense immediately in the period of the decision.

The recording logic is to debit a pre-development cost account under inventory, with separate codes by type of expenditure, and credit cash or payables, and credit WHT for private-sector services at the applicable rates. Permit fees paid to the government are not subject to WHT. Accountants should keep the contract, receipts and the reasons for the classification together for audit purposes.

Chapter 6 Company formation and group structure

Medium to large developers often use a holding company together with a project-level SPV, to separate risk and to ease borrowing, the sale of projects and the dissolution of the company once the work is finished. However, this duplicates accounting and tax costs, creates shared costs that must be allocated, and makes consolidation more complex.

The recording logic starts with receipt of share payments in line with the actual registered capital. Company formation costs are expensed immediately and are not recorded as an intangible asset. A shareholder loan is a long-term liability and should have a contract and interest that can be explained on an arm's length basis, because intercompany transactions may be adjusted for tax purposes.

The BOI promotes certain activities, such as hotels or certain types of tourism business, under conditions announced from time to time. In general, condominiums or houses built for sale are not promoted. A mixed-use project must therefore separate BOI and non-BOI accounts, covering revenue, costs and shared expenses, using a reasonable allocation basis. Temporary differences that reverse during the tax exemption period are measured for deferred tax at the rate actually applicable in that period. Eligible activities and privileges should be checked against the current BOI announcements.

Intercompany transactions, such as management fees, loans and cross-charges, must be supported by a contract and market prices. Entities that meet the criteria must prepare transfer pricing documentation and file a disclosure form. In the consolidated financial statements, intercompany revenue and expenses, and receivables and payables, must be eliminated in the consolidation worksheet, not in the subsidiary's own accounts.