The new accounting rules for builders and standard will soon implement from the fiscal as per the plans. This will lead to force the real estate companies to track back all of their profits that they made. It is stated that all past projects must be in the list including their uncompleted projects. In 2019, the new rules will implement that are going to affect the business owner loans and attract investors. It will also made all the business taxes to track back the bills.
Under IND-AS 115, listed real estate companies will have to write back about Rs 20,000 crore from their net worth in the current fiscal itself. Here are the most important things that must be in the knowledge of the tenants of commercial real estate. This contain important points about the new accounting rules that will affect the financial statement of the lease.
The Changes In The 2018 New Accounting Rules
The companies must follow up the two basic financial statements as per the rules:
- The liabilities and balance sheet lists assets represents the properties owned by a company. It is important to record all the assets to balance or equal to record the liabilities in addition to equity.
- An income statement that is known as P&L contains all the information related to the revenue and expenses of a company. Through this, it will be easy to calculate the total profit and loss of a company.
With the help of new accounting rules for builders, the tenants will be a requirement to operate a lease on the balance sheets. Earlier, tenants didn’t have this type of task. After the implementation, each and every tenant have to maintain a balance sheet. This rule ensures that all the regulators, banks, investors and stakeholders have information in the financial system. All the data that will help them to judge the financial condition of anybody.
The rules are set out with the help of FASB – The Financial Accounting Standards Board and IASB – International Accounting Standards Board that felt that tenants operate lease keeping others in a blind spot in the financial system.
It’s Effect On The Companies
The company’s ability to attract bank loans or investors will greatly be influence due the new accounting rules. Since, it will conclude all the ways in which taxes are paid. When the lease is not considered in the balance sheet, the total payment of lease obligations will take in the course time. This will require to record an up-front liability during the start of a lease.
This has added a new liability to the six to eight figures to the balance sheet. Every time a new entry is made, it will cause some harm to the financial statement of a company. The ratio and financial statements will also suffer. When more leases will be added then it will become hard to attract new loans and investment. This will even cause a default on your current loans.
Why Should It Concern You
IASB and FASB are working on the entire rule set that contains over 343 pages of Revised Exposure Draft. It was published on 16th May 2013. On 1st January 2019, the rules will come into effect for public companies. And then from 2020, for all the private companies.
These rules will include the financial statements that will are generating:
- No grandfather of any of the existing lease since all of them will be accounted for accordance with new rules when they will come into Tenants and owners will revise the balance sheet and P&L before rules come into play on day one.
- When the rules come into play then, it is essential to revise financial statement from the year 2015 and 2016.