Chirayuthchai TraisaengsatheanStrategic Finance for Property Development

Standard project cost budget: project cost taxonomy

Separate the costs of a for-sale project into inventory, period expenses, PP&E and reserves, under TAS 2, TAS 23 and TFRS 15

Key takeaways

  • From the day payment is approved, every project cost item must have a clear answer: does it go into inventory, into P&L, is it PP&E, or is it only a reserve?
  • Condominium sale projects use the inventory model under TAS 2. Land, construction, directly related soft costs and IDC during construction go into the cost of inventory, while selling costs, transfer costs and head-office overhead are period expenses.
  • Contingency is a budget figure, not an accounting entry. A cost arises only when additional work or an approved variation order actually occurs.
  • Before assuming that input VAT can be reclaimed, or that interest during construction is immediately tax-deductible, check the facts of the project, because both points directly affect cost.

Why one taxonomy for the whole project

The project cost taxonomy is the standard list of cost items shared by the project team, the accounting team and management. The aim is for the feasibility budget, the cost control budget and the financial statements to speak the same language. The common problem is not wrong numbers but different groupings. For example, the budget includes marketing in soft costs while accounting must record it as a selling expense, so budget vs actual cannot be checked and inventory is overstated.

This page applies to build-to-sell projects, such as condominiums or branded residences sold by the unit. Property held for rent falls under TAS 40, and property used by the entity itself falls under TAS 16, both of which follow different principles.

The standard taxonomy, categories A to H

A. Land costs

CodeItemAccounting entriesReferenceTax issues
A.1Land purchase priceInventoryTAS 2.10Recognised as cost on sale and transfer
A.2Transfer fee, duty and SBT on the purchase date, only the portion borne by the buyerInventoryTAS 2.11Separate the buyer's and seller's shares according to the contract
A.3Legal fees and land due diligenceInventoryTAS 2.11Withholding tax according to the type of payee
A.4Site survey, soil testing, land surveyingInventoryTAS 2.10WHT on service fees
A.5Brokerage fee on land purchaseInventoryTAS 2.11Withholding tax according to the type of payee
A.6Demolition, site preparation, tree clearingInventoryTAS 2.10WHT on contract work fees

B. Construction hard costs

CodeItemAccounting entriesReference
B.1Main contractor BOQ: substructure and superstructureInventoryTAS 2.12
B.2Architectural works, interior fit-out, façade, hardscapeInventoryTAS 2.12
B.3MEP works: electrical, plumbing, air-conditioning, fire protectionInventoryTAS 2.12
B.4Lifts and vertical transport systemsInventoryTAS 2.12
B.5Roads, drainage, external works, landscapeInventoryTAS 2.12
B.6Utility connection feesInventory; the security deposit for electricity or water is separated out as a depositTAS 2.10
B.7Abnormal waste and rework beyond normal levelsPeriod expenseTAS 2.16(a)

C. Professional fees and soft costs

CodeItemAccounting entriesReference
C.1Architectural, interior and landscape design feesInventoryTAS 2.10
C.2Structural, MEP and civil engineering feesInventoryTAS 2.10
C.3Project management and construction managementInventoryTAS 2.10
C.4Quantity surveyor and cost consultantsInventoryTAS 2.10
C.5EIA, IEE and environmental studiesInventoryTAS 2.10
C.6Building permit and official feesInventoryTAS 2.10
C.7Insurance during construction (CAR, EAR, PI, liability)Inventory only for the construction period; after completion it is a period expenseTAS 2.11
C.8FF&E for common areas handed over to the condominium juristic personInventoryTAS 2.10
C.9FF&E for the sales gallery and show unitsPP&ETAS 2.16(d), TAS 16

D. Marketing, sales and branding

CodeItemAccounting entriesReference
D.1–D.2Marketing, advertising, online media, PRSelling expenseTAS 2.16(d)
D.3–D.4Sales commission: external agents and sales staffSelling expense, or a contract cost asset if it is an incremental cost expected to be recoveredTFRS 15.91–94
D.5Launch events and roadshowsSelling expenseTAS 2.16(d)
D.6Construction of the sales gallery and show unitsPP&E, depreciated over the expected selling periodTAS 16

E. Finance costs

CodeItemAccounting entriesReference
E.1Interest on project loans during construction (IDC)InventoryTAS 23.8, 23.17
E.2Interest after substantial completionFinance costs in P&LTAS 23.22
E.3Loan arrangement fees and commitment feesIncluded in borrowing costs through the effective interest rateTAS 23.6, TFRS 9
E.4Interest during an extended suspension of developmentFinance costs in P&LTAS 23.20

TAS 23.20 uses the phrase "extended period" and does not set a fixed number of months. Setting an internal threshold of three months is acceptable as a policy, but the cause must also be considered. A temporary delay that is a necessary part of the development process does not require capitalisation to stop.

F. Project overhead

CodeItemAccounting entriesReference
F.1Site office, utilities and security during constructionInventoryTAS 2.12
F.2Salaries of project team members who work only on the projectInventoryTAS 2.12
F.3Allocated head-office overheadAdministrative expensesTAS 2.16(c)
F.4Project bank guarantees and performance bondsInventoryTAS 2.11

G. Taxes and costs on sale

CodeItemAccounting entriesNotes
G.1Transfer fee borne by the developerSelling expenseNormal rate of 2% of appraised value; relief measures apply in some cases, see below
G.2Specific Business Tax of 3.3%, including local taxSelling expenseCalculated on the base prescribed by law
G.3Stamp duty 0.5%Selling expenseArises when the transfer is not subject to SBT. Do not budget both items for the same transfer
G.4Land and building tax during the selling periodPeriod expenseHolding costs after the unit is ready for sale do not go into inventory

Transfer fee relief to check before use: According to news reports citing a government announcement, the registration fee for a transfer and mortgage registered at the same time is reduced to 0.01% until 30 June 2027 for individuals of Thai nationality, where the sale price and appraised value do not exceed THB 7 million and the mortgage amount does not exceed THB 7 million. Foreign buyers and juristic persons fall outside this condition. Check the Royal Gazette or the land office before preparing a per-unit budget.

Corporate developers: Do not assume that holding for more than 5 years changes the charge from SBT to stamp duty. Confirm with a tax adviser based on the nature of the entity's sales.

H. Contingency and provisions

CodeItemAccounting entriesRecognition point
H.1Construction contingency and project contingencyNot recorded in the accounts; a budget reserveRecord the actual cost when an approved variation order arises
H.2Defects warranty; a practical example is 1–2% of construction costProvision under TAS 37When revenue from the sale is recognised
H.3Common area fund contribution to be paid to the condominium juristic personA liability; not included in inventoryWhen the obligation arises or is billed

Presenting the budget in three buckets

Splitting total project cost into three buckets shows immediately which part of the financial statements each item will fall into, and reduces the chance of mixing contingency with actual costs.

BucketComprisesDestination
1. Capitalized Inventory CostA + B except B.7 + C except C.9 + E capitalised portion + F direct portionStatement of financial position: inventory
2. Period Selling CostD + G and depreciation of the sales galleryP&L: selling expenses
3. Budget ReserveConstruction contingency and project contingencyNot recorded in the accounts until it actually occurs

The defects warranty provision should be shown as a separate memo item, because it is recognised on sale and is not a construction expenditure.

Decision test: capitalise or not

  1. Is it directly related to bringing the goods to a saleable condition? If not, treat it as a period expense.
  2. Is it a cost of selling? For example, marketing, transfer costs on sale, or the sales gallery. If so, it does not go into inventory, except for commission that meets the contract cost asset criteria under TFRS 15.
  3. Is it general overhead? For example, executive salaries and head-office IT systems. If so, it is an administrative expense.
  4. Is it interest on a project loan? If so, check that development is still in progress and not yet substantially complete.
  5. Is it abnormal waste or rework? If so, it is a period expense; if not, record it in inventory.

Capitalisation principles auditors will ask about

PrincipleStandardPractical effect
The cost of inventory comprises purchase costs, conversion costs and other costs incurred in bringing it to its present conditionTAS 2.10A + B + C + E + F, subject to conditions
Excludes abnormal waste, storage costs, administrative overhead and selling costsTAS 2.16Separated out to P&L
Capitalise IDC when expenditure is incurred, borrowing costs are incurred and development activity is in progress. All three conditions must be metTAS 23.17Stop when the project is substantially complete, and suspend during an extended suspension of development
Allocate costs to units using a systematic and reasonable methodTAS 2Use NSA or relative sales value
Test NRV at every reporting dateTAS 2.9, 2.28–33If prices fall or sales slow, consider a write-down
Recognise revenue when control is transferredTFRS 15.38For Thai condominium units this is generally the ownership transfer day; earlier receipts are contract liabilities
Set up a defects warranty provision when revenue is recognisedTAS 37.14Use historical data or evidence-based estimates

Tax issues to separate from the accounting entries

Input VAT: do not assume it can be credited in every case

Sales of real estate in the form subject to SBT are not VAT-liable activities, so a developer selling only condominium units generally cannot credit the related input VAT, and that VAT becomes a project cost. If the entity has both VAT-liable and non-VAT-liable activities, input VAT must be apportioned by the method prescribed by law. Check the status before setting the budget, because a 7% difference in hard costs directly affects margin.

The 7% VAT rate is currently extended to 30 September 2027 under Royal Decree No. 807 (2026). In long-term models, use rate assumptions that match the period in which each transaction actually occurs.

IDC: do not conclude that it is immediately deductible

The commonly used earlier approach was to record IDC in inventory in the accounts and deduct it as a tax expense when paid, with deferred tax recognised. However, the Revenue Department once replied to a ruling request (Ref. Kor Kor 0702/1871, dated 4 April 2023) that interest on a loan incurred before the asset is ready for use is capital expenditure under Section 65 ter (5). That ruling concerned an investment asset, not a developer's inventory directly, so a tax adviser must determine the approach to apply, and a temporary difference should be recorded only when the tax treatment actually differs from the accounting.

Typical differences

  • Defect provision: the accounts recognise it at the point of sale, while tax deducts it only when the actual expense is incurred, so a deferred tax asset typically arises
  • Sales gallery: useful lives may differ between accounting and tax
  • Contract cost asset: if commission is capitalised under TFRS 15, the timing of recognition may differ from tax

Standard journal entries

EventDebitCredit
Contractor progress paymentsInventory (development in progress), plus input VAT only where a credit can be claimedPayables or bank, accrued WHT, retention payable
Interest during constructionInventory: Capitalized InterestAccrued interest
Advertising and marketingSelling expenses, and input VAT as entitledPayables, accrued WHT
Ownership transferCash/bank, contract liabilityRevenue from real estate sales
Recognise cost of salesCost of real estate salesInventory, allocated by NSA or sales value
Transfer fees and SBTSelling expenseBank
Set up a defect provisionCost of sales or warranty expenseProvision: Warranty

Documents and month-end closing

ItemMinimum documentsApprover
Buying landTitle deed, sale and purchase agreement, transfer fee receipt, due diligence report, valuation reportMD and legal department
Construction progress payment drawdownInvoice, payment certificate, progress report, photographs, bank guarantee statusPM, CM, Finance
Professional feesInvoice, milestone evidence, service contractPM and Finance
Marketing and commissionInvoice, contract, evidence of work performed, sales contractMarketing and Finance
Capitalized InterestStatement, loan schedule, calculation memoFinance Manager
Ownership transferLand office receipt, contract, evidence of receipt of funds, settlement statementFinance and legal department

Month-end closing checklist

  • Reconcile contractor invoices to signed payment certificates
  • Calculate and record IDC per the schedule, and confirm that it is still within the capitalisation period
  • Check that no selling costs or head office overheads have entered inventory
  • Reconcile retention payable to the retention register
  • File WHT and tax reports by the deadlines that apply to the business
  • Test NRV at least quarterly
  • Update budget vs actual and forecast at completion
  • At year-end, review the warranty provision and deferred tax

Common mistakes

ErrorImpactCorrect approach
Taking marketing costs or commission into inventoryInventory and profit for the period are overstatedRecord as selling expenses, unless the TFRS 15 conditions are met
Capitalising interest after the work is mostly completeBreaches TAS 23.22Stop on the set date and reclassify as finance costs
Including the sales gallery in inventoryMisclassificationClassify separately as PP&E
Recognising revenue when the booking agreement is signedRevenue is recognised too earlyRecord as a contract liability until control is transferred
Recording contingency as an advance costInventory does not reflect actual costHold it in the budget
Not setting up a warranty provisionCost of sales is understated and profit overstated in the year of transferSet it up when revenue is recognised
Allocating head office salaries to the projectBreaches TAS 2.16(c)Capitalise only the teams working directly on the project
Not withholding WHT when paying for servicesThe payer is liable for the tax and surchargesWithhold according to the type of income and file by the deadline
Not performing an NRV test because the units are believed to sell as plannedAccounting evidence is missingPrepare an NRV memo on a periodic basis