Accounting Treatment of Joint Development Agreements

“In a joint development, profit is shared—but accountability must never be”

A Joint Development Agreement (JDA) is a contractual arrangement in which parties come together to develop real estate —typically involving grant of development rights by landowner and construction/development by the developer. The output (flats/units/revenue) is shared based on agreed ratios. JDAs require detailed accounting evaluation as they create shared risks, rights, obligations, revenue streams, and asset usage.

1. Identification of the arrangement

The initial evaluation focuses on understanding the exact nature of contributions and the commercial intent of the agreement. This includes examining whether the parties grant development rights on land, construction expertise, finance or project management. It is also necessary to analyse the area/revenue sharing mechanism and determine who controls key development decisions. Under Ind AS, this assessment determines whether the arrangement qualifies as a joint arrangement. Under the earlier AS framework, JDAs were treated mainly as contractual real estate transactions without such classification requirements.

2. Accounting of Joint Development Agreement under Accounting Standard

The accounting of joint development arrangements under the Accounting Standards (AS) requires careful assessment of the rights and obligations arising from the arrangement to ensure that the financial statements reflect its true substance. Such arrangements often involve complex considerations relating to recognition, measurement, and timing of revenue, costs, assets, and liabilities. Accordingly, application of the relevant AS and related guidance is essential to achieve consistent and transparent financial reporting. Accounting from the perspective of both land owner and developer is discussed herewith:

2.1. Accounting for the Landowner under AS

The land continues to be recognised as a fixed asset in the balance sheet, since legal ownership remained with the entity throughout the arrangement and, accordingly, no de-recognition of land is required.

Further, under construction/work-in-progress or completed flats are not recognised in the financial statements, as the responsibility for construction and related recognition rested with the developer under the terms of the agreement. Moreover, the revenue is recognised in accordance with the provisions of the development agreement, at the point when the right to receive consideration becomes reasonably certain.

2.2. Accounting for the Developer under AS

Construction costs are accumulated as work-in-progress during the development phase and, upon completion, the constructed units are recognised as stock-in-trade (inventory), with the total cost of construction and the agreed land consideration forming part of the developer’s project cost. As legal ownership of the land does not transfer to the developer, the land is not recognised as an asset in the books. Further, any payments made or revenue share payable to the landowner under the arrangement are treated as an integral component of the overall project cost.

2.3. Example to understand the accounting under Accounting Standard

Let us understand the accounting in the books of both land owner and developer through the help of an example.

The developer incurs construction costs of ₹2 crore to construct 10 flats. The allocation is made in a way that 4 flats are allocated to the landowner and 6 flats are allocated to developer. Out of the developer’s share of 6 flats, 3 flats are sold during the first year. Additionally, 4 flats are handed over to the landowner as consideration for land. The sales price is 45 lakhs per flat.

2.3.1 Books of the Developer

Balance Sheet (Developer)

Profit & Loss Account (Landowner)

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