ASC

ASC 360-970

Real Estate—General

360 Property, Plant, and Equipment

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In brief

IntermediateInventory and PP&EInitial measurementImpairmentIndustry-specific

ASC 360-970 gathers the real estate–specific property, plant, and equipment guidance in two sets of subsections: Real Estate Syndication and Real Estate Project Costs. It requires costs clearly associated with the acquisition, development, and construction of a real estate project to be capitalized and then allocated to project components (by specific identification, then relative fair value/sales value, then area methods), addresses donated and abandoned real estate and changes in use, and applies the Subtopic 360-10 impairment model project by project. For syndications, fees paid to and rentals received from a developer-seller under a master leaseback are adjustments to the basis of the property.

Key points (7)
  • Payments to and receipts from a developer-seller under a master leaseback negotiated with a real estate syndication are treated by the syndication as adjustments to the basis of the property, affecting future depreciation (360-970-25-1; 360-970-55-2).
  • Project costs clearly associated with acquisition, development, and construction of a real estate project shall be capitalized as a cost of that project, and indirect project costs relating to several projects shall be capitalized and allocated among them (360-970-25-2 through 25-3).
  • Capitalized costs are assigned to individual project components by specific identification; if impracticable, land and common costs (including amenities) are allocated to benefited parcels on relative fair value before construction and construction costs to units on relative sales value, and if that too is impracticable, by area or other value methods (360-970-30-1).
  • Real estate donated to municipalities or governmental agencies for uses benefiting the project is not an abandonment; its cost is allocated as a common cost of the project (360-970-35-1).
  • On a change in use under a formal plan expected to produce a higher economic yield, costs charged to expense are limited to the excess of capitalized costs incurred and to be incurred over the estimated value of the revised project when substantially complete (360-970-35-2).
  • Impairment follows Subtopic 360-10 (held-for-sale model for substantially completed projects to be sold; held-and-used model for property under or awaiting development and completed projects to be held for rental), evaluated on an individual-project basis, where a project consists of relatively homogeneous integral components (360-970-35-3); insufficient rental demand for a rental project under construction is an additional impairment indicator (360-970-35-4).
  • If real estate or rights to real estate are abandoned (e.g., allowing a mortgage foreclosure or option lapse), the capitalized costs shall be expensed and not allocated to other components or projects (360-970-40-1).

For students. Exam traps here are the allocation hierarchy (specific identification → relative fair value before construction for land/common costs and relative sales value for construction costs → area methods) and the sharp contrast between donated land (a common cost allocated to the project) and abandoned real estate (expensed immediately, never reallocated). Students often wrongly test impairment at the multiphase-development level; each homogeneous project (tract, condo complex, subdivision) is evaluated separately.

real estate project costscost capitalization and allocationindirect project costsmaster leasebackreal estate syndicationabandonmentchange in useimpairment of long-lived assets

Machine-generated study aid for ASC 360-970. Check the source paragraphs below.

360-970-00Status

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360-970-00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Phase (1st def.)SupersededAccounting Standards Update No. 2014-0603/14/2014
Phase (2nd def.)AddedAccounting Standards Update No. 2014-0603/14/2014
970-360-25-2AmendedAccounting Standards Update No. 2020-1010/29/2020
970-360-25-2AmendedAccounting Standards Update No. 2014-0905/28/2014
970-360-25-4AmendedAccounting Standards Update No. 2014-0905/28/2014
970-360-30-1AmendedAccounting Standards Update No. 2014-0603/14/2014
970-360-55-4SupersededAccounting Standards Update No. 2014-0905/28/2014
970-360-55-5SupersededAccounting Standards Update No. 2014-0905/28/2014

360-970-05Overview and Background

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360-970-05-1
The content in this Subtopic is contained in the Real Estate Syndication Subsections and the Real Estate Project Costs Subsections.

Real Estate Syndication

360-970-05-2
The Real Estate Syndication Subsections of this Subtopic provide guidance on the accounting treatment by a real estate syndication for payments to and receipts from a real estate developer that sold property to the syndication.

Real Estate Project Costs

360-970-05-3
The Real Estate Project Costs Subsections of this Subtopic provide recognition and measurement guidance on the allocation of capitalized costs of real estate projects and changes in the use of real estate. In addition, they discuss the treatment of real estate donated or abandoned and the recoverability of the carrying amount of real estate projects.
360-970-05-4
See Subtopic 970-340 for additional guidance on capitalization of real estate project costs.

360-970-15Scope and Scope Exceptions

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Overall Guidance

360-970-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 970-10-15.

Real Estate Syndication

360-970-15-2
The Real Estate Syndication Subsections follow the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see the Real Estate Syndication Subsection of Section 970-10-15.

Real Estate Project Costs

360-970-15-3
The Real Estate Project Costs Subsections follow the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see the Real Estate Project Costs Subsection of Section 970-10-15.

360-970-25Recognition

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Real Estate Syndication

360-970-25-1
If a real estate developer sells a recently constructed office building to a public real estate syndication and negotiates a master leaseback agreement with the syndication general partner, under which the syndication pays a fee to the seller and the seller leases the vacant space at a market rate at the date of sale for a defined lease-up period, payments to and receipts from the seller shall be treated by the syndication as adjustments to the basis of the property and will affect future depreciation. See paragraph 970-360-55-3 for guidance if the terms of the agreement meet the definition of a derivative.

Real Estate Project Costs

Capitalized Project Costs

360-970-25-2
Project costs, which are costs that are clearly associated with the acquisition, development, and construction of a real estate project, shall be capitalized as a cost of that project. See Topic 340-40 for guidance on capitalization of costs that are not within the scope of this Subtopic or Subtopic 970-340.
360-970-25-3
Indirect project costs that relate to several projects shall be capitalized and allocated to the projects to which the costs relate.

Assets Transferred Between Entities

360-970-25-4
See Section 974-720-25 for adjustment of assets that will be transferred between a real estate investment trust and its adviser.

Other Considerations

360-970-25-5
See Section 410-20-25 regarding accounting for retirement and environmental costs at acquisition.

360-970-30Initial Measurement

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Real Estate Project Costs

Allocation of Capitalized Costs

360-970-30-1
The capitalized costs of real estate projects shall be assigned to individual components of the project based on specific identification. If specific identification is not practicable, capitalized costs shall be allocated as follows:
  1. a
    Land cost and all other common costs, including the costs of amenities to be allocated as common costs per paragraphs
    970-340-25-9 through 25-11
     (before construction), shall be allocated to each land parcel benefited. Allocation shall be based on the relative fair value before construction.
  2. b
    Construction costs shall be allocated to individual units in the phase on the basis of relative sales value of each unit.
If allocation based on relative value also is impracticable, capitalized costs shall be allocated based on area methods (for example, square footage) or other value methods as appropriate under the circumstances.
360-970-30-2
As indicated in paragraph 970-360-35-1, certain donated land shall be allocated to project costs.

360-970-35Subsequent Measurement

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Real Estate Project Costs

Real Estate Donated to Government Agencies

360-970-35-1
Real estate donated to municipalities or other governmental agencies for uses that will benefit the project are not abandonments. The cost of the real estate donated shall be allocated as a common cost of the project.

Changes in Use of Real Estate Acquired for Development

360-970-35-2
Changes in the use of real estate comprising a project or a portion of a project may arise after significant development and construction costs have been incurred. If the change in use is made pursuant to a formal plan for a project that is expected to produce a higher economic yield (as compared to its yield based on use before change), the development and construction costs to be charged to expense shall be limited to the amount by which the capitalized costs incurred and to be incurred exceed the estimated value of the revised project when it is substantially complete and ready for its intended use.

Recoverability

360-970-35-3
The provisions in Subtopic 360-10 for long-lived assets to be disposed of by sale shall apply to a real estate project, or parts thereof, that is substantially completed and that is to be sold. The provisions in that Topic for long-lived assets to be held and used shall apply to real estate held for development, including property to be developed in the future as well as that currently under development, and to a real estate project, or parts thereof, that is substantially completed and that is to be held and used (for example, for rental). Determining whether the carrying amounts of real estate projects require recognition of an impairment loss shall be based on an evaluation of individual projects. An individual project, for this purpose, consists of components that are relatively homogeneous, integral parts of a whole (for example, individual houses in a residential tract, individual units in a condominium complex, and individual lots in a subdivision and amenities). Therefore, a multiphase development consisting of a tract of single-family houses, a condominium complex, and a lot subdivision generally would be evaluated as three separate projects.
360-970-35-4
Paragraph 360-10-35-21 provides examples of events or changes in circumstances that indicate that the recoverability of the carrying amount of a long-lived asset shall be assessed. Insufficient rental demand for a rental project currently under construction is an additional example that indicates that the recoverability of the real estate project shall be assessed in accordance with the provisions of Subtopic 360-10.

360-970-40Derecognition

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Real Estate Project Costs

Abandonments

360-970-40-1
If real estate, including rights to real estate, is abandoned (for example, by allowing a mortgage to be foreclosed or a purchase option to lapse), capitalized costs of that real estate shall be expensed. Such costs shall not be allocated to other components of the project or to other projects.

360-970-55Implementation Guidance and Illustrations

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Real Estate Syndication

Implementation Guidance

360-970-55-1
In the following example, a real estate developer sells a recently constructed office building to a public real estate blind pool syndication. Because the property is not yet fully occupied, the general partner of the syndication negotiates a master leaseback agreement with the seller at the date of the sale. Under the terms of the agreement, the syndication pays a fee to the seller and the seller leases the vacant space at a market rate, at the sale date, for a two-year period. This payment is described as a fee in exchange for signing a master lease or as an escrowed portion of the purchase price. The syndication will relieve the seller of its future lease payment obligations on space the seller subsequently subleases to others if the sublease meets certain criteria. If the seller is unable to lease the vacant space during the two-year period, the rental payments to the syndication would substantially exceed the fee paid by the syndication.
360-970-55-2
Paragraph 970-360-25-1 states payments to and receipts from the seller should be treated by the syndication as adjustments to the basis of the property and will affect future depreciation.
360-970-55-3
Topic 815 would apply if the terms of the agreement meet the definition of a derivative. The agreement would typically meet the scope exception in paragraph 815-10-15-13 relating to the sales or service revenues of one of the parties to the contract since the underlying is the leasing rental revenue of the syndicate, in which case that Topic would not affect the accounting in this example.

Real Estate Project Costs

360-970-S00StatusSEC

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360-970-S00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
970-360-S99-1AmendedAccounting Standards Update No. 2019-0707/26/2019

360-970-S50DisclosureSEC

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Supplemental Schedules

360-970-S50-1
See paragraph 205-10-S99-6, Regulation S-X Rule 5-04(c), for the entities required to include Schedule III—Real Estate and Accumulated Depreciation in their reports.
360-970-S50-2
See paragraph 970-360-S99-1, Regulation S-X Rule 12-28, for the requirements of Schedule III—Real Estate and Accumulated Depreciation.

360-970-S99SEC MaterialsSEC

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SEC Rules, Regulations, and Interpretations

360-970-S99-1
The following is the text of Regulation S-X Rule 12-28, Real Estate and Accumulated Depreciation (17 CFR 210.12-28).
  • Reg. § 210.12-28 Real Estate and Accumulated Depreciation1 (For certain real estate companies) Column A Column B Column C Column D Column E Column F Column G Column H Column I Descriptions2 "Encum- brances " Initial cost to company "Cost capitalized subsequent to acquisition" "Gross amount of which carried at close of period 3,4,5,6,7" Accumulated depreciation Date of construc- tion Date acquired Life on which depreciation in latest statements of comprehensive income is computed Land Buildings and improvements "Improve- ments " Carrying costs Land Buildings and improvements Total 1 All money columns shall be totaled. 2 "The description for each property should include type of property (e.g., unimproved land, shopping center, garden apartments, etc.) and the geographical location." 3 The required information is to be given as to each individual investment included in column E except that an amount not exceeding 5 percent of the total of column E may be listed in one amount as “miscellaneous investments.” 4 "In a note to this schedule, furnish a reconciliation, in the following form, of the total amount at which real estate was carried at the beginning of each period for which statements of comprehensive income are required, with the total amount shown in column E: Balance at beginning of period .............................................................................................................................................. $ ............................ Additions during period: Acquisitions through foreclosure.............................................................................................. $............................... Other acquisitions........................................................................................................................................................ Improvements etc. ...................................................................................................................................................... Other (describe) ...............................................................................................................................................................$.................................. Deductions during period: ................................................................................................................... Cost of real estate sold ................................................................................................................ $ .............................. Other (describe) .......................................................................................................................................................... .............................. Balance at close of period ...................................................................................................................................................... $ ............................. " "If additions, except acquisitions through foreclosure, represent other than cash expenditures, explain. If any of the changes during the period result from transactions, directly or indirectly with affiliates, explain the bases of such transactions and state the amounts involved. A similar reconciliation shall be furnished for the accumulated depreciation." 5 "If any item of real estate investments has been written down or reserved against, describe the item and explain the basis for the write-down or reserve." 6 State in a note to column E the aggregate cost for Federal income tax purposes. 7 The amount of all intercompany profits included in the total of column E shall be stated if material.
[38 FR 6068, Mar. 6, 1983. Redesignated at 45 FR 63630, Sept. 25, 1980; 83 FR 50208, Oct. 4, 2018]

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