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ASC 360-20-40-7 states, "a sale shall not be considered consummated until all of the following conditions are met: (a) the parties are bound by the terms of a contract, (b) all consideration has been exchanged, (c) any permanent financing for which the seller is responsible has been arranged, and (d) all conditions precedent to closing have been performed. Usually, those four conditions are met at the time of closing or after closing, not when an agreement to sell is signed or at a preclosing." ASC 360-20-40-28 provides an exception to this requirement if the seller is constructing office buildings, apartments, condominiums, shopping centers, or similar structures due to the length of the construction period.
Examples
Consideration Not Transferred - If a contract for sale had been signed and consideration has been transferred to an escrow account on December 31, 20X8, but the actual closing (i.e., funding, title transfer, and issuance of the mortgage note) did not take place until January 4, 20X9, the sale should be recorded in the year of closing.
Transfer of Title Not Completed - When all other steps prerequisite to a sale have taken place but the escrow agent or attorney does not record the transfer of title on a timely basis for reasons not significant to the transaction, the date of sale for accounting purposes would likely be the date of closing (i.e., legal transfer of title and insurance risk) rather than the date on which the transfer was presented to governmental authorities for recording.
Development and Construction Not Complete - Exceptions to the "conditions precedent to closing" have been specifically provided where a sale of property includes a requirement for the seller to complete certain limited construction or development activities; these exceptions provide, in certain circumstances, for partial profit recognition at closing and as construction progresses. This exception is not usually applicable to single-family detached housing which generally has a short construction period.
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