IAASA recently published a financial reporting decision relating to Dalata Hotel Group plc’s accounting treatment of the proceeds from the sale of residential units as revenue in its 31 December 2022 annual financial statements.

The examination considered the requirements of IFRS 15 where the issuer sold residential units to a third party and recognized the proceeds from the sale as revenue. The costs of the residential units are presented in cost of sales and the profit from the sale is presented in operating profit.

Findings by IAASA

IFRS 15 defines ‘revenue’ as ‘income arising in the course of an entity’s ordinary activities’ (IFRS 15, Appendix A).

IFRS 15.6 states that ‘A customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration’.

IAASA concluded that, based on the specific facts and circumstances pertaining to the issuer, including that the ‘primary activities’ description in the annual report made no reference to residential development, and the fact this was the first time that the issuer had incorporated residential development into a hotel development project, the sale of residential units was not part of the ordinary activities of the issuer and, consequently, it did not meet the definition of revenue under IFRS 15. The transaction did not, in this instance, constitute part of the issuer’s ordinary activity and, therefore, required separate presentation within the consolidated statement of profit or loss and other comprehensive income.

IAASA did not challenge the measurement of income from residential development activities nor the cost of residential development activities. In addition, IAASA found that the extent of disclosures in the 2022 annual financial statements regarding the accounting treatment applied to the sale of the residential units was transparent.

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