Real Estate Accounting Made Easy, 2nd Edition

14ACCOUNTING FOR PROJECT DEVELOPMENT COSTS ON GAAP BASIS

STAGES OF REAL ESTATE DEVELOPMENT PROJECTS

There are three main stages of a development project, and accounting at each of these stages can be different. The three main stages are:

1. Pre-development stage
2. Development stage
3. Post-development stage

Accounting for development projects under generally accepted accounting principles (GAAP) requires good knowledge of applicable accounting standards. This chapter aims to make the accounting guidance simpler and easier to understand and apply, and also offers a practical application of the accounting standards. This chapter also discusses the accounting for costs related to acquiring, developing, constructing, selling, and leasing real estate projects.

The costs associated with the development of a project are accounted in different ways, depending on the nature of the costs and the stage of the project. Some costs are expensed as period costs, some are capitalized when incurred as costs of the project, while others are recorded as prepaid expenses and expensed in the period in which the related revenues are recognized.

PRE-DEVELOPMENT STAGE

The pre-development stage can be described as the period prior to the start of the construction of the project. Let us begin the discussion of accounting for pre-development from the very beginning, at the inception of the entity that will own the project. Normally the sponsor(s) of a project form a legal entity that directly owns the project ...