The document discusses key accounting practices used by Gafisa, a Brazilian real estate company. It explains that Gafisa uses the percentage of completion method to recognize revenues over time as construction progresses. It also uses special purpose entities (SPEs) for real estate investments to address third party interests, construction financing requirements, and tax/accounting matters. The legal structure involves Gafisa holding ownership stakes in multiple SPEs, which in turn hold ownership positions in joint venture projects with other real estate developers.

1. April 27, 2006
Accounting and Tax

2. Income Statement Content
• Revenues are composed of the following: residential real estate
development, development and sales of office buildings, development and
sales of land in residential condominiums and rendering of construction
services.
Gross Revenues
• The real estate development revenues include interest and monetary
adjustments from credit sales.
• Consists basically of taxes on sales of property and services - PIS and COFINS
Deduction
(federal taxes) and ISS (municipal tax on services rendered)
• Costs are composed of the following: residential real estate development
costs, development and sale of office buildings costs, development and sales
of land in residential condominiums costs and costs of services rendered.
Cost • Real Estate development costs consist of costs of land, construction
of Sales (including foundation, structure and finishing, as well as interest on directly
related financing and costs for a broad variety of raw materials) and our own
and outsourced labor.
Sales and • Consist mainly of the creation of showrooms and furnished model
marketing apartments; sales commissions; marketing and advertisement.

3. Income Statement Content (2)
• General and administrative expenses include mainly labor, management and
Geral and legal fees and benefits and outsourced services, such as auditing and
consulting, payroll, corporate expenses (publication of records, financial
Administrative statements, etc.), legal expenses (registries, notary public, commercial
unions, etc.), in addition to other expenses.
Financial • Consists basically of corporate interest on loans and interests from
Expenses corporate debentures which proceeds application is the same.
• Income and social contribution taxes are calculated pursuant to criteria set
forth in the applicable tax laws. Companies calculate these taxes according to
two different criteria; (i) the "real profit regime,'' and (ii) the "presumed
profit regime,'' certain companies are allowed to calculate taxes based on
profits which do not necessarily correspond to their actual profits, but are
Income Taxes determined based on a percentage of their revenues.
• In addition, Company and certain of our subsidiaries have amounts to be
taxed in future fiscal years, as a result of differences in income from real
estate development taxed on a cash basis and the amounts recorded on an
accrual basis as deferred taxes.

4. Understanding Gafisa’s Financials
Key Accounting Practices - BRGAAP
Consolidation - the Company consolidates all its affiliates (SPE´s) on a proportional basis.
Revenue Recognition - Company recognizes sales using percentage-of-completion method of
accounting (PoC) to account for revenues and construction costs, measuring progress towards
completion in terms of actual costs incurred versus budgeted expenditures for each stage of
a development.
Selling and Marketing expenses - Expenses for launched developments are deferred and
recognized as expenses based on the percentage of completion method.
• Income Taxes - Deferred income taxes are recognized for all temporary differences between
the tax and financial reporting bases of the Company's assets and liabilities based on enacted
tax laws and statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income.

5. Key Accounting Practices – Percentage of Completion
Time 0 6 Months 12 Months 24 Months 36 Months 42 Months 72 Months
Sales
Launching 50% of Sales 60% of Sales 80% of Sales 95% of Sales 100% of
of a New Achieved Achieved Achieved Achieved Sales
Developme Achieved
nt
Payments in advance from clients
Launching 20% of Sales Received in 40% of Sales Received in 100% of Sales Received
of a New Cash Cash in Cash
Developme
nt
Construction
Constructio 30% 97% 100%
n / Revenue Construction Construction Construction
Recog. Completed Completed Completed
Starts
Given the long production cycle (construction takes about three year for completion)
there is a mismatch between sales and what is being recognized revenues.

6. Key Accounting Practices
Revenue Recognition - Projects launched after December 2003
Assumptions:
Sales Total 100.000
Cost 70.000 Attention to Backlog and
Gross Margin 30.000 Gross Margin of sales – Off
Year 0 Year 1 Year 2 Balance -
Complementary informations
Construction Curve 0% 50% 100%
% Sales Received 20% 40% 80%
Balance Sheet
Year 0 Year 1 Year 2 Year 0 Year 1 Year 2
Assets Liabilities
Development
Obligations
Cash 20.000 5.000 10.000 20.000 - -
Accounts Receivables - 10.000 20.000
Shareholders' Equity
Retained Earnings - 15.000 30.000
Total 20.000 15.000 30.000 Total 20.000 15.000 30.000
P&L
Year 0 Ano 1 Ano 2
Revenues - 50.000 50.000
Cost - (35.000) (35.000)
Gross Profit - 15.000 15.000

7. Legal Structure
Why we use Special Purpose Entities (“SPE”)
For real estate investments Gafisa usually
incorporates a SPE, for:
Third party´s interests - partner
Construction Financing – required by banks
Tax matters and accounting aspects
Given specific needs or opportunities Gafisa
may engage in certain partnership
with strategic partners
Gafisa S.A
Current number of SPE´s = 29
49% 99.8% 99.8% 99.8%
SPE 22 SPE 31 SPE 33 ... SPE 44
50% 50% 50%
Sunplace Sai Amarela ... Cyrela Gafisa