Annual Report 2020

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12 Profit on disposal of Real Estate Inventories (development)

Accounting Policies

Income from the disposal of properties (Development) is realized either over time or at a specific point in time as soon as the customer obtains control over the asset in question. If, upon conclusion of the certified purchase agreement, control within the meaning of IFRS 15.35(c) passes to the customer before or during the construction phase, the revenue is to be recognized as of this point in time based on the degree of completion of the construction project. Disclosure of the contract assets that fall within the scope of IFRS 15 occurs on a net basis with the corresponding advance payments received under trade receivables.

Contractual balances with an expected term of less than one year are not adjusted to reflect the time value of money.

No separate agreements are reached, in the contracts on the sale of apartments as part of the development business, on extraordinary rights of return or rescission, meaning that such rights are based on the relevant legal provisions. The same applies to warranty commitments, which are not to be treated as a separate contractual component within the meaning of IFRS 15 as a result. Existing warranty claims are always accounted for in line with the provisions of IAS 37.

In accordance with IFRS 15.94, costs for the initiation of the contracts with customers are recognized as an expense as soon as they are incurred, as the depreciation period generally would not amount to more than a year. The costs relate primarily to brokerage commission.

In cases involving revenue recognition over time, the percentage of completion/progress made has to be assessed. Vonovia uses the cost-to-cost method, as an input-based procedure, for this purpose. The progress made is determined based on the ratio of the capitalized contract costs incurred up until the reporting date to the estimated total contract costs that can be capitalized.

Income from the disposal of properties (Development) in the amount of € 297.7 million (2019: € 249.5 million) comprises € 194.4 million (2019: € 183.3 million) in period-related income from the disposal of properties together with € 103.3 million (2019: € 66.2 million) in time-related income from the disposal of properties. As of the reporting date, contract assets of € 121.5 million (2019: € 59.4 million) are recognized within trade receivables in connection with the period-related revenue recognition. As of the reporting date, this amount includes advance payments received of € 87.1 million (2019: € 114.2 million).

A transaction price of € 124.2 million (2019: € 59.0 million) has been allocated to the remaining performance obligations that had not yet been satisfied (in full) at the end of the current reporting period . These amounts are expected to be recognized, affecting net income, within the next three fiscal years, with an amount of € 87.4 million attributable to 2021, an amount of € 36.6 million to 2022 and an amount of € 0.2 million to 2023.