ASC

ASC 720-970

Real Estate—General

720 Other Expenses

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In brief

IntermediateRecognitionInventory and PP&EIndustry-specificInitial measurement

ASC 720-970 addresses when real estate project costs must be expensed rather than capitalized. Its core rules: internal costs of preacquisition activities for a property that will be an operating property at acquisition date are expensed as incurred (720-970-25-1), and indirect costs not clearly related to projects under development or construction — including general and administrative expenses — are charged to expense as incurred (720-970-25-3). The Subtopic defines "operating" property as one where major construction is substantially complete and the property is either available for occupancy upon tenant improvements or already income-producing (720-970-25-2).

Key points (6)
  • All content in this Subtopic resides in the Real Estate Project Costs Subsections, which govern capitalization versus expensing of real estate project costs (720-970-05-1 and 720-970-05-2).
  • Internal costs of preacquisition activities incurred to acquire a property that will be classified as operating at the acquisition date must be expensed as incurred (720-970-25-1).
  • A property is 'operating' at acquisition if major construction activity (not routine maintenance or cleanup) is substantially completed and it is either held available for occupancy upon completion of tenant improvements by the acquirer or already income-producing (720-970-25-2).
  • Indirect costs that do not clearly relate to projects under development or construction, including general and administrative expenses, are charged to expense as incurred (720-970-25-3).
  • Guidance on accounting for internal costs relating to real estate property acquisitions (i.e., the capitalization side) is located in the Real Estate Project Costs Subsection of Section 970-340-25 (720-970-05-3).
  • Scope follows the Overall Subtopic scope in Section 970-10-15, including the Real Estate Project Costs Subsection of that section (720-970-15-1 and 720-970-15-2).

For students. This is the "expense it" mirror of ASC 970-340's capitalization rules: the key fork is whether the target property is already operating (expense internal preacquisition costs) versus under development or construction (potential capitalization). Students commonly assume all preacquisition costs can be capitalized — internal costs tied to an operating property, and any indirect/G&A costs not clearly tied to a development project, never can.

real estate project costspreacquisition costsinternal costsoperating propertyindirect costsgeneral and administrative expensescapitalization versus expensingproject under development or construction

Machine-generated study aid for ASC 720-970. Check the source paragraphs below.

720-970-00Status

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720-970-00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
970-720-05-3AmendedAccounting Standards Update No. 2012-0410/01/2012

720-970-05Overview and Background

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720-970-05-1
The content in this Subtopic is contained in the Real Estate Project Costs Subsections.

Real Estate Project Costs

720-970-05-2
The Real Estate Project Costs Subsections of this Subtopic provide guidance on the capitalization and expensing of real estate project costs.
720-970-05-3
See the Real Estate Project Costs Subsection of Section 970-340-25 for guidance on the accounting for internal costs relating to real estate property acquisitions.

720-970-15Scope and Scope Exceptions

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Overall Guidance

720-970-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 970-10-15.

Real Estate Project Costs

720-970-15-2
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.

720-970-25Recognition

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Real Estate Project Costs

Preacquisition Costs

720-970-25-1
Internal costs of preacquisition activities incurred in connection with the acquisition of a property that will be classified as operating at the date of acquisition shall be expensed as incurred.
720-970-25-2
A property would be considered operating if, at the date of acquisition, major construction activity (as distinguished from activities such as routine maintenance and cleanup) is substantially completed on the property and either of the following conditions exists:
  1. a
    It is held available for occupancy upon completion of tenant improvements by the acquirer.
  2. b
    It is already income-producing.

Indirect Costs

720-970-25-3
Indirect costs that do not clearly relate to projects under development or construction, including general and administrative expenses, shall be charged to expense as incurred.

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