Discounting an obligation to a Group company
Posted: 17 Jan 2022, 06:38
What are the circumstances in which you can get away with not discounting a long term obligation (to a related party)? Would an argument that the working capital cycle of a real estate developer spans over multiple accounting periods (24 to 36 months) be sufficient for such an argument?
A Group company transfers land to real estate developer A to be developed. The Developer develops residential and commercial units on the land and sells these units. At the time of transfer of land from the Group company, it records a payable towards the Group company. Once the payment plan is completed (which can span over the time until the handover of residential / commercial units to buyers) the payable stays in A's books and once the unit is handed over and payments are completed, it makes a payment to the Group company with respect to land (at cost).
A Group company transfers land to real estate developer A to be developed. The Developer develops residential and commercial units on the land and sells these units. At the time of transfer of land from the Group company, it records a payable towards the Group company. Once the payment plan is completed (which can span over the time until the handover of residential / commercial units to buyers) the payable stays in A's books and once the unit is handed over and payments are completed, it makes a payment to the Group company with respect to land (at cost).