Minco also determines the membership of the board of the housing association and thus there is a question mark over whether the board is independent from Minco. Minco is exposed to risk as if it had built the housing units itself because it gives guarantees in respect of the construction process. Further, Minco guarantees the payment for the housing association’s debt on the building loan. Minco provides a guarantee as regards the maintenance costs, is liable for certain increases in the interest rate over expectations, and is responsible for financing variations in the procurement and construction contract Minco should assess the risks for the entire project since it is exposed to material risks during the construction period. Even if the risk associated with the land is different to the risk associated with the project directly. It is important to consider whether the risks for the project have been transferred to the association and whether Minco has control over the project during the construction period.
(e) the costs incurred or to be incurred in respect of the transaction can be measured reliably. (d) it is probable that the economic benefits associated with the transaction will flow to the seller and (c) the amount of revenue can be measured reliably (b) the seller retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold (a) the seller has transferred to the buyer the significant risks and rewards of ownership Revenue arising from the sale of goods should be recognised when all of the following criteria have been satisfied (IAS 18.14): Recognition required by paragraph 14 of IAS 18 do not appear to be met, and no revenue should be accounted for as of the date of the transfer of land to the housing association. “Minco needs to consider whether its revenue recognition policy is in compliance with IAS 18 Revenue. The examiner’s answer to this (ACCA website answer) was: Minco argues that the transfer of land represents a sale of goods which fulfils the revenue recognition criteria in IAS 18 Revenue. The income recognised is the difference between the total sales price for the finished housing units and the total estimated costs for construction of the units. Minco recognises income for the entire project when the land is transferred to the housing association. Minco sets up the board of the housing association, which comprises one person representing MincoĪnd two independent board members. Minco is responsible for any construction costs in excess of the amount stated in the contract and is responsible for paying the maintenance costs for any units not sold. Minco enters into discussions with a housing contractor regarding the construction of the housing units but the agreement is between the housing association and the contractor. Currently, the housing rights are normally all sold out on the completion of a project. However, Minco negotiates and acts as guarantor for the loan, and bears the risk of increases in the loan’s
The housing association enters into loan agreements with the bank to cover the costs of building the homes. Rights to occupy the housing units to members of the public but the housing association is the legal owner of the building. Minco purchases land and transfers ownership to the housing association before construction starts. One aspect of its business is to provide low-cost homes through the establishment of a separate entity, known as a housing association. “Minco is a major property developer which buys land for the construction of housing.
Reference is in the above title to this thread.
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