Part 6: Specialised topics and complex issues

Chapter 20 Multi-phase projects

Splitting a project into phases helps test the market and spread the funding, but it makes the accounting more complex. The key principle is that every cost must be traceable to a specific phase, or be a shared cost with a clear allocation basis. The handbook divides costs into Phase-Specific Cost, Shared Common Cost and Corporate Cost, and the last category must pass a test of whether it can be included in project cost.

The recording logic is to post phase-specific costs to that phase's WIP using a Dimension Code. Shared costs, such as common land, roads or common areas, are held in a Shared Pool before being allocated to phases on the basis of saleable area, sales value, number of units or benefit received. The chosen basis must be applied consistently. If cost per sq m differs widely between phases, check the allocation and any postings to the wrong phase first.

When phases overlap in time, the same financial statements show both revenue from phases already transferred and contract liability from phases still being sold. Investors should therefore read the phase-by-phase report alongside the consolidated statements. Revenue for each phase is still recognised on the transfer day of the units in that phase, not according to the progress of the project as a whole.

On the financing side, the first phase to be transferred may generate cash to invest in the next phase and reduce borrowing, but the cash available must first be net of loan obligations, reserves and bank conditions. Moving cash between phases within a single legal entity requires separate reporting, and if the phases sit in different SPVs, the movement must be treated as an intercompany transaction supported by a contract.

Chapter 21 Condotels and rental pool income

A condotel combines the sale of units with hotel-style management. It involves the developer, the unit owners, the management company and the condominium juristic person, linked by a Rental Pool Agreement, a Hotel Management Agreement and a building management agreement. The contracts must therefore be read before any entries are made.

The key question under TFRS 15 is principal or agent. If the management company controls the service before it is delivered to the guest, it recognises the full amount as revenue and the owners' share as an expense. If it acts as a manager on the owners' behalf, it recognises only its fee. Occupancy risk is just one factor; control, pricing and liability to customers must be considered together.

The gross logic is to debit receivables and credit room revenue and output VAT, then debit the share expense and credit payables to unit owners and WHT. For a guaranteed return, look at the minimum obligation. If the developer gives the guarantee together with the sale, its effect on the transaction price should also be assessed. If the contract is expected to make a loss, consider a provision for an onerous contract under TAS 37 and review it every period.

On tax, daily room rental services are subject to 7% VAT, and payments to unit owners must be classified by type of income before WHT is withheld. Unit owners bear their own income tax and land and building tax according to how the unit is used. A return guarantee should state clearly who bears the cost, because it affects both the developer's and the management company's financial statements.

Chapter 22 Joint venture and co-development projects

JVs in Thailand take several forms: setting up a joint venture company, a joint working agreement, an exchange of land for units, and co-investment through a single company. The accounting depends on rights of control and the nature of the joint arrangement, not on the name of the contract. An entity that is controlled must be consolidated. A joint venture under TFRS 11 uses the equity method under TAS 28, while a joint operation records its own assets, liabilities, revenue and expenses according to its rights and obligations. Entities applying TFRS for NPAEs must check the options in the relevant chapters.

The equity method logic is to debit the investment when the investment is made, then adjust it up or down for the share of the joint venture's profit or loss, and reduce it when dividends are received.

When a landowner contributes land as equity in a JV, its fair value must be assessed using an independent valuer's report, the market approach or the income approach. On the JV company's side, debit land and credit equity. On the investor's side, consider how much of the gain can be recognised, because gains on transactions with a joint venture may need to eliminate the investor's own share under TAS 28. Contributing land as equity can also have tax consequences even though no cash is received, so Specific Business Tax (SBT), income tax and fees should be calculated according to the transferor's status before signing.

A waterfall is the order in which cash is distributed, for example return of capital, minimum return, catch-up and sharing of the excess. The calculation must follow the contract terms, and the accounts must separate contractual sharing of returns from the shareholding proportions. A table showing each tier should be prepared so that it can be traced back, since this is a frequent source of disputes between joint venture partners.

Chapter 23 Foreign buyers and leasehold/freehold ownership

For a freehold sale to a foreign buyer, the accounting principle is the same as for a Thai buyer: revenue is recognised when control transfers. There is additional work, however, on the quota, foreign exchange documents and exchange rates. Amounts received in foreign currency are recorded at the rate on the date of receipt. Foreign currency deposits are monetary items that must be retranslated, whereas contract liabilities are generally not monetary items.

Under the Condominium Act 1979, foreigners' combined ownership of condominium units is limited to 49% of the total area of all units in that condominium. The quota should be checked against the building's register before accepting a booking and before the transfer appointment, together with evidence of funds brought into Thailand as required by the land office. Using a nominee is a legal risk that must not be supported.

A leasehold is a lease that can be registered for no more than 30 years at a time. Any renewal right beyond that is a contractual arrangement whose enforceability must be checked, and it should not be presented as equivalent to 90-year ownership. The original text proposes recognising revenue immediately as a sale of rights, but this website takes the position that the arrangement must first be analysed under TFRS 16 as lessor, because the resulting recognition differs greatly. Tax must be considered separately, and there has been guidance that rent received in advance should be spread over the contract term.

The recording logic therefore has to wait for the result of the contract classification. Whether to record the whole amount as revenue or defer it as unearned revenue and release it over time should be confirmed with the auditor and tax adviser before the policy is set. The SBT, transfer fee and CIT burden on a freehold sale is no different from that for a Thai buyer.

Chapter 24 Investment property (TAS 40)

This chapter separates inventory from investment property by the purpose for which the asset is held. Units held for sale in the ordinary course of business fall under TAS 2, buildings let on long-term leases under TAS 40, and areas the entity uses itself under TAS 16. Where a property is used for mixed purposes, the parts must be separated if they can be sold or leased separately. Land held for development and sale remains inventory.

A change in classification requires a demonstrable change in use, such as the start of a lease under contract, not merely a change of intention. Unsold units that the entity decides to let on long-term leases should be supported by a resolution and a lease agreement. Under the cost model, the recording logic is to debit investment property and credit units ready for transfer at their carrying amount.

TFRS for PAEs allows a choice between the cost model and the fair value model. Under the cost model, depreciation must be charged, impairment tested when there are indications, and fair value disclosed. Under the fair value model, no depreciation is charged and changes in fair value are recognised in profit or loss. If a transfer is made from inventory to a property measured at fair value, the difference on the transfer day is likewise recognised in profit or loss.

The choice of model should take into account the effect on covenants, because fair value makes profit volatile and requires regular valuation. Entities applying TFRS for NPAEs use cost. Impairment under the cost model is recorded by debiting the loss and crediting accumulated impairment allowance under TAS 36, which follows different principles from the write-down of inventory under TAS 2.

Chapter 25 Impairment of project inventory

Project inventory must be measured at the lower of cost and net realisable value under TAS 2. NRV is the expected selling price less discounts, the costs to complete and the costs necessary to make the sale, such as SBT, transfer fees and commission. The assessment should be made unit by unit or for groups of similar units.

NRV = expected net selling price − remaining construction costs − costs necessary to make the sale

Signs that call for a review include falling market prices, sales persistently below target, competitors selling at lower prices, costs well over budget and project delays. The numerical thresholds in the handbook are internal guidelines, not requirements of the standards. Adjust them to the nature of the project and document the reasons.

The accounting logic is to debit the impairment loss and credit the allowance for inventory write-down, which is a contra-asset account. Disclose the calculation method and key assumptions. The allowance is a temporary tax difference, so a deferred tax asset (DTA) must be considered under TAS 12.

When conditions improve, the write-down may be reversed, but only up to the allowance previously recognised, and the carrying amount after reversal must not exceed the original cost. The reversal reduces expenses in the period in which it is made. A reversal must be supported by evidence of actual changes in selling prices or costs, not just general forecasts. Both the auditor and users of the financial statements will examine this assumption.