A property sale contract includes the following: (a) Common areas (b) Construction services and building material (c) Property management services…

(a) Paragraph 22 of Ind AS 115 provides that at contract inception, an entity evaluates the promised goods or services to determine which goods or services (or bundle of goods or services) are distinct and therefore constitute a performance obligation. A performance obligation is a promise in a contract to transfer to the customer either: - a goods or service (or a bundle of goods or services) that is distinct; and - series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. As per paragraph 27 of Ind AS 115, a goods or service that is promised to a customer is distinct if both of the following criteria are met: (a) the customer can benefit from the goods or service either on its own or together with other resources that are readily available to the customer (i.e. the goods or service is capable of being distinct); and (b) the entity's promise to transfer the goods or service to the customer is separately identifiable from other promises in the contract (i.e. the promise to transfer the goods or service is distinct within the context of the contract). Each performance obligation is required to be accounted for separately. The facts and circumstances of each contract should be carefully considered to determine the performance obligations. However, based on the above guidance, the following table in general discusses whether the common goods and services in property sale contract should be considered as separate performance obligation or not: Goods/Service Whether a separate performance obligation (PO) or not Reason Common areas Unlikely to be separate PO Common areas are unlikely to be a separate PO because the interests received in common areas are typically undivided interests that are not separable from the property itself. However, if the common areas were sold separately by the developer, then they could be considered as a separate PO provided that it is distinct in the context of the contract. Construction services and building materials Unlikely to be separate PO Construction services and building materials can meet the first criterion as they are items that can be used in conjunction with other readily available goods or services. However, the developer would be considered to be providing a significant integration service as it is bringing together all the separate elements to deliver a completed building. Property management services and Golf membership Likely to be separate PO Property management services and golf membership are likely to be separate PO as they may be used in isolation or with the property already acquired, i.e., management services can be used with the property. These types of services are not significantly customised, integrated with, or dependent on the property. This is because there is no change in their function with or without the property. Also, a property management service could be undertaken by a third party. Car park and Land entitlement Analysis required Items such as car parks and land entitlements generally meet the first criterion i.e., capable of being distinct as the buyer benefits from them on their own. Whether the second criterion is met depends on the facts and circumstances. For example, if the land entitlement can be sold separately or pledged as security as a separate item, it may indicate that it is not highly dependent on, or integrated with, other rights received in the contract. In an apartment scenario, the customer can receive an undivided interest in the land on which the apartment block sits. This type of right is generally considered a highly inter-related with the apartment itself.* *However, if title to the land is transferred to the buyer separately – for example in a single party development – then the separately identifiable criterion may be met.