IAS 11 CONSTRUCTION CONTRACTS
for Accounting Professionals
IAS 11 CONSTRUCTION CONTRACTS
2011
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IAS 11 CONSTRUCTION CONTRACTS
IFRS WORKBOOKS
(1 million downloaded)
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Robin Joyce
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International Banking and Finance
Financial University
under the Government of the Russian Federation
Visiting Professor of the Siberian Academy of Finance and Banking
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Moscow, Russia
2011 Updated
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IAS 11 Construction Contracts
CONTENTS
Introduction and Definitions
1. Introduction and Definitions ........................................................ 3
1.1 Aim
1.1
Aim
3
1.2 Objective And Preparation 3
1.3 Bank accounting and construction contracts. ..................... 6
1.4 Definitions ......................................................................... 7
The aim of this workbook is to assist the individual in
understanding Construction Contracts according to IFRS.
Construction Contracts are the subject of International
1.5 Scope ................................................................................. 8
1.6 Contract Revenue ........................................................... 10
Accounting Standard (IAS) 11.
1.7 Contract Costs ................................................................ 12
1.8 Recognition of Contract Revenue and Expenses ........ 14
1.2
Objective And Preparation
1.9 Stage of Completion Calculation ................................... 16
2 Recognition of Expected Losses and Changes in Estimates21
The start and finish of Construction Contracts often fall into
Changes In Estimates .......................................................... 21
different accounting periods. Thus, the timing of recognition of
3 Disclosure
22
4 Specific Examples
23
contract revenue and contract costs is a key issue of the
5 Multiple Choice Questions
29
standard.
6 Exercise Questions
31
7 Solutions
34
IAS 11 is special as it enables revenue and profit to be
Note: Material from the following PricewaterhouseCoopers publications has
been used in this workbook:
recognised during construction under specified conditions rather
-Applying IFRS
-IFRS News
-Accounting Solutions
than only at completion.
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IAS 11 Construction Contracts
Revenue is the subject of IAS 18, and revenue for Financial
A sale agreement meets this definition if it is an agreement for
Instruments is the subject of IAS 39.
the seller to provide construction services to the buyer’s
Under IAS 18, in general, revenue is recognised on completion of
specifications.
the work.
Features that, individually or in combination, may indicate that an
Only certain construction is covered by IAS 11 Construction
agreement is for the seller to provide construction services to the
Contracts.
buyer’s specifications include:
If a sale agreement is for the sale of goods, revenue shall be
(i) the buyer being able to specify the major structural elements of
recognised when all the conditions in paragraph 14 of IAS 18
the design of the real estate before construction begins and/or
have been satisfied.
specify major structural changes once construction is in progress
(whether it exercises that ability or not);
Two of the conditions for the recognition of revenue require the
entity to have transferred to the buyer the significant risks and
(ii) the seller transferring to the buyer control and the significant
rewards of ownership of, and effective control over, the goods
risks and rewards of ownership of the work in progress in its
sold.
current state as construction progresses.
IAS 11 defines a construction contract as “a contract specifically
Indications that the seller transfers control of the work in progress
in this way may include, for example:
negotiated for the construction of an asset or a combination of
assets …”
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IAS 11 Construction Contracts
(i) the construction taking place on land that is owned or leased
instead provides construction services and materials that
become attached to the land as they are provided.
by the buyer;
(ii) the buyer having a right to take over the work in progress
(albeit with a penalty) during construction, for example to engage
a different contractor to complete the construction;
(iii) in the event of the agreement being terminated before
construction is complete, the buyer retaining the work in progress
and the seller having the right to be paid for work performed
-the buyer typically has a right to take over the work in
progress (albeit with a penalty) before construction is
complete.
-the seller earns the right to be paid primarily on the basis of
work performed (subject to client acceptance) rather than
purely for the delivery of finished goods.
The building of houses and apartments by a developer may not
meet the conditions of IAS 11, especially if they are to be sold to
multiple buyers, even if they have been pre-sold.
(subject to buyer acceptance).
Here, construction takes place independently of the sale
The terms of contracts for construction services tend to be such
agreement and buyers have only limited ability to influence the
that there is a continual delivery (transfer of control and risks and
construction and design of the real estate. There is no ’continual
rewards of ownership) from the seller to the buyer as construction
delivery’ to the buyer during the construction phase (continuing
progresses.
For example:
-the land under construction is owned by the buyer from the
outset.
-the contractor typically has no ownership claim to the work in
progress (beyond perhaps a right of lien). The contractor
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transfer of control and risks and rewards of ownership).
Control of the house or apartment tends to pass from seller to
buyer at a single point in time, usually when the unit is ready for
occupancy.
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IAS 11 Construction Contracts
Features that, individually or in combination, may indicate that an
Guidance covering real estate sales is the subject of an IASB
agreement is for the sale of goods (covered by IAS 18 Revenue,
interpretation.
not IAS 11 Construction Contracts) include:
Similarly, building for your own use and speculative building in
(i) the negotiation between buyer and seller primarily concerning
anticipation of finding buyers or lessees is unlikely to meet the
the amount and timing of payments, with the buyer having only
criteria of IAS 11. Building for your own use is covered in IAS 16
limited ability to specify the design of the real estate, for example,
Property, Plant and Equipment. Speculative building will normally
to select a design from a range of options or specify minor
produce inventory and be classified according to IAS 2
variations to the basic design;
Inventories (see chart of property types later in this workbook).
(ii) the agreement giving the buyer only a right to acquire the
An effective internal financial budgeting and reporting system,
completed real estate at a later date, with the seller retaining
which is kept up-to-date at all times, is required to control
control and the significant risks and rewards of ownership of the
construction contracts. Regular reviews of costs and revisions of
underlying work in progress until that date.
estimates are necessary throughout the contract.
If a project is classified under IAS 11 Construction Contracts,
1.3 Bank accounting and construction contracts.
revenue and profit can be accrued during construction. If the
project is classified under IAS 18 Revenue, generally revenue
and profit cannot be accrued during construction.
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Summary
Bank accounting rarely involves construction contracts.
Bank clients may be involved in construction contracts. If so,
financial analysis of their IFRS financial statements would require
knowledge of IAS 11.
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IAS 11 Construction Contracts
Most banks are heavily involved in property: their own property
and that of their clients. Their clients often use property as
collateral, as well as using bank funds to finance the purchase
and sometimes the construction of property.
Hidden losses may occur from costs that are believed to be
rechargeable to clients that the client refuses to accept.
As a bank’s involvement in property increases, so does the need
for banks to employ their own property experts.
Construction Contract
Concerns for Bankers
A construction contract is a contract made for the construction of
one or more assets that are closely-related, or interdependent in
their design, technology, and function, or their purpose or use.
IFRS primarily concerns the economic value and profit of
transactions, whilst bankers are deeply concerned about liquidity
and cash flows.
Example:
Construction contracts are medium and long-term ventures.
Money from the purchaser may be received at infrequent
intervals. This may require the contractor to provide finance for
much of the work for considerable periods of time before
reimbursement, with a potential for liquidity problems arising as a
result.
Regular reviews of the cash flows are needed to ensure that any
slippage is quickly identified and action taken.
The contract revenue may change from one period to the next, as
a result of contract variations, claims, penalties, and costescalation clauses. The revenue may be partly or wholly accrued
and therefore not matched by cash received.
Another major concern with construction contracts is hidden
losses generated by making insufficient progress, or mistakes in
the early or middle stages of the contract, causing cost overruns
to appear in later accounting periods.
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1.4 Definitions
Should a manufacturer of plant and machinery follow the
guidance for construction contract accounting?
Background
K is building a large currency printing press within the premises
of the buyer, which can take up to 18 months to complete. A
contract can therefore be active over three accounting periods.
Entity A can reliably estimate the outcome of the contract.
Solution
Yes. The date at which contract activity is entered into and the
date when the activity is completed fall into different accounting
periods.
The work in progress system K uses to track its production
processes should be used to determine the stage of completion
of each contract at the balance sheet date. Revenue on
contracts for the manufacture of the printing presses should be
recognised by reference to the percentage of completion method
(see below).
Example:
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IAS 11 Construction Contracts
Does the production of a series of assets meet the definition of a
construction contract?
This is a cost escalation clause.
Cost-plus Contract
Background
An entity entered into a contract with a retailer that sells furniture.
The contract will last for a period of two years. The entity is
required to manufacture 2,000 sofas over the two-year term to
the retailer’s specification.
A cost-plus contract is a contract where the contractor is
reimbursed for allowable costs, plus a percentage profit (or fixed
fee). Cost plus is the standard for some contractees (for example,
some government bodies).
Solution
This is not a construction contract. It is simply a contract between
a supplier and a purchaser for the production of goods. The
contract is for the construction of a series of assets that are not
interrelated. The sofas are not interrelated because one sofa is
not connected to, or dependent on, another sofa in any way.
Example:
You agree to buy a security vault for the contracted costs, plus a
10% profit.
The sofas will be delivered to the retailer over the period of two
years as they are manufactured. There is no typical construction
activity. Commencement and completion of individual sofas will
fall into a single accounting period.
1.5 Scope
This is a cost-plus contract.
Construction contracts include:

Fixed-price Contract
A fixed-price contract is a contract in which the parties agree to a
fixed price, or a fixed price per unit of output.
Cost-escalation clauses may be a feature of these contracts.
Example:
You agree with a contractor to build an office block including a
branch of your bank over a 3-year period for $10million. For the
contractor, at the end of years 1 & 2, unbilled revenue will be
increased by the national annual rate of inflation recorded on the
31st of December.
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
Services related to the construction, such as project
managers and architects.
Contracts for destruction, or restoration, of assets and the
restoration of the environment.
Example:
As part of a new head office complex, you are building a new
road. A clause in the contract requires you to restore all grass
areas beside the new road.
The restoration is part of the contract.
Combining and Segmenting Construction Contracts
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IAS 11 Construction Contracts
When a contract covers more than a single asset, the
construction of each asset should be treated as a separate
contract when:
Separate proposals have been submitted for each asset;
Each asset has been a separate negotiation and each
party could reject the part of the contract applying to that
asset; and
3. Costs and revenues of each asset can be measured.
1.
2.
Example:
You have a master contract to build 80 branches for a retail
banking operation over a 2-year period, in different locations
throughout the region.
The cost for each branch is negotiated separately, and you
receive a 10% profit, based on the agreed cost for each branch.
An additional fee is charged at the start of the period of the
licence once the tailoring is complete and the client has accepted
the software package. No further amounts are payable during the
licence period, either for the use of the software or for the
maintenance support.
X’s management has questioned how the revenue from the
contract should be recognised.
Solution
Management should account for the tailoring, the licensing and
the maintenance support as separate elements.
The tailoring of the software should be accounted for as a
construction contract in accordance with the principles of IAS 11,
and the fee for the use of the software and the maintenance
support should be recognised on a straight-line basis over the
period of the licence in accordance with IAS 18.
Each branch should be treated as a separate contract.
Example:
Should a contract for an asset’s construction and operation be
accounted for as a single contract or separate contracts?
Background
X develops and sells computer software. The sales take the form
of a licence to use the software for a limited period of time, and
include after-sales support during the period of the licence. The
sales include a significant element of tailoring the basic software
to meet the client’s needs.
The allocation of the total contract revenue between the tailoring
service, the right to use the software and the maintenance
support should be made on the basis of the fair value of the
services. The allocation of the revenue based on fair value is
likely to differ from an allocation based on the billing schedule.
A group of contracts, with one client or more, should be treated
as a single contract when:
1. The contracts were signed as a single package;
2. The contracts are so closely related that they are, in
substance, part of a single project with an overall profit
margin: and
X charges its clients a series of fees during the tailoring period.
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IAS 11 Construction Contracts
3. The contracts are performed concurrently, or in a
continuous sequence.
Example:
Should a group of contracts with a single customer be accounted
for as a single contract or separate contracts?
Background
A contractor is negotiating two contracts with a single customer.
The customer must either accept both contracts or reject both.
The first contract will be for the design of a computer centre and
the second for the plant’s construction. The planned profit
margin on the design contract is 20%, and the planned profit
margin on constructing the centre is 10%.
Solution
The two contracts should be accounted for as a single contract.
The contracts were negotiated as a single package; the client
must accept both or reject both. The contracts are closely related
and will be performed in a continuous sequence. An overall profit
margin should be recorded as work is performed on both
contracts.
Example:
You have contracts to build a number of branches in shopping
malls. Site preparation is done by the client, and building costs
are the same for each branch.
This may be treated as a single contract.
A contract may provide for an additional asset at the client’s
option, or by way of an amendment. This will be treated as an
additional contract when:
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1. The asset is fundamentally different from those included in
the original contract; or
2. The price of the new asset is agreed without regard to the
original contract price.
Example:
You are building a retail branch, and your client asks you to build
a transport distribution centre in the grounds, at a price to be
negotiated.
This will be treated as an additional contract.
1.6 Contract Revenue
Contract revenue should comprise:
1. The initial revenue agreed; and
2. Variations in the contract work, claims and incentive
payments.
(These are included if it is probable that they will result in
revenue, and are capable of being reliably measured).
The contract revenue may change from one period to the next, as
a result of contract variations, claims, penalties, and costescalation clauses.
Variations may increase, decrease, or redesign the scope of the
contract, with a matching change in revenue.
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IAS 11 Construction Contracts
Changes are only included in revenue when it is likely that the
client will approve the variation and its impact on the revenue,
and the change in revenue can be reliably measured.
Incentive payments are bonuses paid if the contractor meets or
exceeds specific criteria, such as early completion of part, or all,
Example:
You are building a road. The original plan called for a bridge over
a railway, but the authorities now insist on a tunnel under the
railway instead.
This is a variation.
Claims are levied by the contractor on the client for costs not
included in the contract price. Often, these stem from problems
caused by the client, such as wrong specifications, errors in
designs, and delays.
of the contract. They are included in contract revenue when it is
likely that they will be earned.
Example:
You are building a head office. If the actual completion date is a
month (or more). earlier than the planned completion date, your
firm will earn a bonus (and the client can start operations early)..
This is an example of an incentive payment.
Contract estimates need to be revised, either for actual
performance, or new considerations of future performance.
Example:
You have been contracted to demolish some houses, and build a
clearing house. You were promised vacant possession. When
your staff arrives, they find that the tenants still occupy the old
houses. It takes a month to re-house them, delaying the start of
work.
Example:
You are redeveloping a retail site in the city centre. You had
planned to work 24 hours per day, but the city has just passed
regulations to halt building work at night.
This may be the basis for a claim.
Example:
Clients may contest the claims, so they should only be included
Progress payments and advances received from clients often do
not reflect the work performed. On what basis should management
assess a project’s percentage of completion?
in project revenue when the amount of the claim that is likely to
You may have to revise your contract estimate.
be paid can be reliably determined.
Background
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IAS 11 Construction Contracts
P entered into a contract with B to construct a clearing centre. The
cost of the clearing centre is estimated at 150,000. The total
revenue from the contract is estimated at 200,000. P will take 3
years to construct the clearing centre.
At the end of year 1 P incurred costs of 60,000. The client was
invoiced for 50,000 at the end of year 1. Payment of this progress
billing is due, early in year 2, in accordance with the normal credit
terms that P offers.
Management estimated the stage of completion as 33%, based on
the amount invoiced.
Solution
The percentage of completion should be determined from: the
proportion of costs incurred to date; the percentage of physical
work complete; or services performed to date. Amounts invoiced to
clients do not necessarily influence the stage of completion.
Based on the relationship between the costs incurred to date and
total estimated costs, the contract is 40% (60,000/150,000)
completed at the end of year 1. Revenue of 80,000 (40% of
200,000) should be recognised at the end of year 1.
The 50,000 progress billing invoiced to the client should be
recognised as an adjustment to construction account receivable in
the balance sheet. The construction account receivable balance is
disclosed separately on the face of the balance sheet (SFP).
1.7 Contract Costs
Contract costs should be expensed as incurred. Costs may be
carried over to future periods only if they will be reimbursed in
those periods.
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Revenue is generated as detailed in the previous section, and
matched with the costs of the period as detailed in the following
section.
Contract costs comprise:
1) Costs that relate specifically to the contract.
2) Other costs chargeable to the client, under the terms
of the contract.
3) Costs allocated to contract activity in general, which
are allocated to the contract.
Costs relating specifically to the contract include:
1.
2.
3.
4.
5.
6.
7.
8.
Site labour costs, including supervisors.
Materials used in construction.
Depreciation of plant and equipment used.
Transport of staff, materials and assets to the site.
Hiring plant and equipment.
Contract design and technical assistance work.
Rectification, guarantee, and expected warranty costs.
Claims from third parties.
Incidental income (from sale of equipment at the end of the
contact, surplus materials and scrap) will reduce these costs.
Example:
You are demolishing an old building, prior to building a call
centre. You sell the materials from the old building for scrap.
This is incidental income.
Other costs chargeable to the client may include some general
overheads, or development costs, that the client has agreed to be
billed under the contract.
Example:
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IAS 11 Construction Contracts
You are building 100 branches of various sizes. Your client asks
that you spread the architects’ fees over costs of all the
branches.
You have a team whose sole job is to write bids for construction
This is an example of general development costs being spread
over different contracts.
All costs can be allocated to separate bids.
Costs allocated to contract activity in general include:
1. Construction overheads.
2. Insurance.
3. Borrowing costs of the contractor.
Borrowing costs of the contractor should be expensed as
incurred.
Borrowing costs of the owner are the subject of IAS 23 and may
be capitalised according to IAS 23.
contracts, and negotiate them up to the point of signing contracts.
Their costs should be expensed in each period, except those
costs for bids likely to be won. Costs for bids likely to be won
would be carried forward as an asset: prepaid expenses for
contracts.
Example:
Expenses to be included in contract cost incurred
Costs that are not included in the contract, and cannot be
allocated to the contract, are treated as general overheads.
Costs incurred in securing a contract can be included as contract
costs, if they are separately identifiable, and it is likely that the
contract will be won.
Example:
When the stage of completion is determined by reference to the
contract costs incurred to date, only those contract costs that
reflect work performed are included in costs incurred to date.
What amount of expenses should management include in
contract costs incurred when determining the stage of
completion?
Background
An entity incurred the following expenses in year one of a threeyear contract:
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IAS 11 Construction Contracts
Expense
Amount
Salaries and wages
Material used
Material delivered to the site to be used in future periods
Direct overheads
Provision for environmental clean-up costs at end of
contract
Payment for the manufacture of specialist equipment. The
equipment has been delivered to the site but not yet
installed
Payments to sub-contractors for work performed
Advance payments to sub-contactors for work to be
performed
1500
900
300
600
200
Total expenses incurred
5000
1000
400
100
Management should determine the stage of completion by
assessing contract costs incurred to date as a portion of the
estimated total contract costs.
Solution
Contract cost incurred to date for the purposes of determining the
stage of completion of the contract amount to 4,400.
The following expenses are not included in contract costs to date
because they do not reflect on work performed in the current
year:
Material delivered to the site to be used in future
periods
Provision for environmental clean-up costs at end
of construction
Payments to sub-contactors in advance for work to
be performed
Total
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300
200
100
600
The specialist equipment is tailored according to the
requirements of the particular contract, and is therefore to be
considered in the stage of completion when it is delivered to the
site.
1.8 Recognition of Contract Revenue and Expenses
Contract revenue and costs should be recognised by reference
to the stage of completion (‘percentage of completion’) of the
contract at the balance sheet date.
Any expected loss on the contract should be recognised
immediately.
Example:
You have been notified by a subcontractor that his costs to you
for next year will increase by 15%. You cannot bill your client for
this increase. It will cause you to lose money on the contract, and
can find no alternative supplier.
Recognise the anticipated loss immediately.
Example:
What amount should be recognised as profit or loss for the
contract in each year?
Background
T is constructing a building for its client. The construction is in its
second year of the three-year project.
Management had originally assessed the contract to be profitable
and recognised a profit in year 1 of 20,000, based on the
percentage of the contract that had been completed at that time.
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IAS 11 Construction Contracts
Management now believes the contract will incur a cumulative
loss of 30,000.
Any anticipated excess of total contract costs over total contract
revenue should be recognised immediately.
Management has proposed that a loss of 30,000 on the contract
is recognised in year 2, but has questioned how the profit of
20,000 recognised in year 1 should be treated.
Contract costs that relate to future work on the contract, and for
which the client will pay, can be treated as an asset, usually
work in progress.
Solution
Management should immediately recognise a loss in respect of
the contract of 50,000 in year 2. This represents a reversal of the
20,000 profit recognised in year 1 and the 30,000 loss expected
on the contract as a whole.
Example:
You are building a training centre, and have imported some
insulation material that will not be needed until next year. (This
was done to avoid an imminent price rise announced by the
supplier).
The loss has been assessed through a revision of the estimated
costs to completion. The appropriate accounting entry is
therefore to recognise the adjustment in the current year’s results
rather than record a prior-period adjustment.
You have also paid an advance to a subcontractor.
For fixed-price contracts, the result can be estimated when the
following conditions are satisfied:
1.
2.
3.
4.
Total revenue can be measured reliably.
Contract costs to complete can be measured reliably.
The stage of completion is known.
Actual costs can be compared with prior estimates.
For cost-plus contracts, contract costs must be identifiable,
whether or not they are reimbursable.
Using the percentage of completion method, revenue is
recognised in the income statement in the periods, in the periods
in which the work is done.
Costs are recognised as incurred.
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Both items should be booked to work in progress.
If there is a risk that revenue that has already been recognised
may not be paid, the uncollectable amount is recognised as an
expense immediately on recognition. It is not an adjustment of
revenue.
Example:
You are a subcontractor. The contractor has approved your
work, and you have recognised the revenue according to the
contract. The client is delaying payment, for reasons that are not
clear. You should create a doubtful debt provision for the
disputed revenue.
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IAS 11 Construction Contracts
1.9 Stage of Completion Calculation
Note: Progress payments and advances received from clients
often do not reflect the work done.
The contract is the main reference. Methods may include:
1. The proportion that costs incurred for the work to date
relate to the estimated total costs.
Example:
You are building a new computer centre, for which your costs will
be $10million. So far you have spent $4million. Assume that the
project is 40% complete, unless there is any evidence to the
contrary.
2. Surveys of the work done.
Example:
You are building a duplicate securities trading centre as part of
your client’s disaster plan. The client’s surveyors have
confirmed that 37% of the work is complete, and recommended
payment for the work.
Example:
On signing a contract to build a credit card clearing house, you
receive a payment of 10% of the contract price.
Treat this as deferred income (a liabililty), and do not recognise
any revenue, at this time.
When the outcome of a construction contract can be estimated
reliably, contract revenue and contract costs associated with the
construction contract should be recognised at the balance sheet
date.
When the outcome of a Contract cannot be estimated:

No profit is recognised, though an expected loss
should be recognised immediately.

Revenue should only be recognised to the extent that it
is likely to be chargeable to the client.

Costs should be recognised in the period in which they
are incurred.
3. Completion of a physical portion of the work.
Example:
You are building 300 branches of similar size. 75 are complete,
and no work has been done on the other 225. Treat your
contract as 25% complete, unless there is any evidence to the
contrary.
Costs incurred relating to future work on the contract, including
advance payments to subcontractors, should not be included in
the calculation.
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Example:
Should an entity recognise a construction contract work in
progress balance at year-end?
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IAS 11 Construction Contracts
1. Financial difficulties of contractor or client.
Background
E has recently started to design and construct web sites for its
customers. This is a new activity for E and it is not clear yet how
long such work will typically take; however, it is clear that the
activities will be likely to start in one accounting period and end in
the subsequent one.
Example:
Your client has not paid you for your work on the agreed date.
Solution
Management should not recognise construction contract work in
progress in respect of the costs incurred on the web sites. All
costs should be expensed as incurred.
Arguments ensue, but you think that your client has serious
Construction contract accounting also applies to rendering
services. However, management does not have a clear and
reasonable estimate of the costs likely to be incurred in the
development of each web site.
2. Pending litigation or legislation.
Example:
The costs therefore do not meet the recognition criteria for
construction contract work in progress.
Revenue should be recognised only to the extent that
management believes the costs will be recovered. Management
will therefore need to defer all revenue until the end of the
contract if there is uncertainty about collectability.
Management will be able to recognise work in progress and
follow the normal principles for construction contract revenue
recognition once it has established a track record of web site
development costs. This is likely to be after the first financial
year.
financial problems, and the contract is at risk.
You are rebuilding on an old industrial site. The government finds
toxic effluent has been leaking from the site, and applies to the
court for an order to stop work.
3. Lack of clarity in the contract on reimbursement of costs.
Example:
You are building a client service centre. Government officials
demand additional health and safety features, which are not
covered by the contract. You submit a variation proposal to the
client, who refuses it, claiming the cost is yours.
Common causes of such uncertainty over the outcome include:
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IAS 11 Construction Contracts
4. Anticipated failure to complete the contract.
Example:
Accounts receivable
Revenue
Revenue recognition
You are building a call centre. Part of the site unexpectedly
B
I
$5m
$5m
becomes flooded, and you cannot determine whether or not the
Revisions to estimates do not mean that the financial outcome of
the transaction cannot be reliably measured.
call centre will be completed within the contract period.
Advances and progress payments received from clients may
not reflect the stage of completion.
Example:
You are constructing a building for a client. Project revenue is $20m.
Costs to date are $6m, and you estimate that additional costs to
completion are $10m.
(Costs have been accumulated in an asset account: construction
in progress. An alternative method is to expense them as incurred.)
The client has, so far, only approved $4m of the expenditure, as his
staff is on holiday for the month.
You believe that the $2m ($6-$4m) will be approved). No payment
has been received.
Recognise:
$4m as expense (the amount approved)
$5m as (accrued) revenue (4/16*$20m).
$2m is left as construction in progress. ($6m-$4m=$2m)
I = Income statement, B = Balance sheet (SFP)
I/B
DR
Cost of sales
I
$4m
Construction in progress
B
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CR
Example: Percentage of Completion -1
On day 1 of a $50 million contract, $5 million is received on account.
This should not be fully recognised as revenue until 10% of the work
has been successfully completed.
Cash
Deferred revenue
Recording cash receipt on day 1
I/B
B
B
DR
$5m
Example: Percentage of Completion -2
10% is now completed, costs total $3m
Cost of sales
I
$3m
Work in progress
B
Deferred revenue
B
$5m
Revenue
I
Revenue recognition –when 10% of
the work is completed
CR
$5m
$3m
$5m
In the early stages of a transaction, it may be that the profitability
cannot be reliably estimated.
$4m
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IAS 11 Construction Contracts
If it is likely that only the costs will be recovered, recognise only
enough revenue to equal the costs. (accounting for the project as
breakeven: no profit, no loss).
Example: Recovery of costs
Project revenue is a total of $100 million. $1 million has been spent
at the period end, and there are problems that indicate that no profit
will be made on the project.
Recognise $1million as accrued revenue and $1million as (actual)
expenses.
Accounts receivable
Revenue
Revenue recognition
Cost of sales
Work in progress
Recognising expenses
I/B
B
I
DR
$1m
I
B
$1m
CR
$1m
$1m
If it is not probable that the costs will be recovered, no revenue is
recognised, and all costs are immediately expensed.
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IAS 11 Construction Contracts
Property type- different accounting
treatment applied to properties under
IFRS depending on their current and
future uses and their ownership
Owner-occupied property
Standard
Number
Standard Name
Valuation
IAS 16
Property, plant and equipment
(see also IAS 20 Government grants)
Cost or revaluation.
Property acquired in an exchange of
assets
Investment property
Investment property being redeveloped
for continuing use as investment property.
Investment property held for sale without
development (unless it meets the criteria
of IFRS 5 – see below).
Property held under an operating lease
classified as an investment property
Property held under a finance lease
IAS 16
Property, plant and equipment
IAS 40
IAS 40
Investment property
Investment property
Fair value or the carrying amount of the assets given
up.
Cost or fair value.
Cost or fair value.
IAS 40
Investment property
Cost or fair value.
IAS 40
Investment property
IAS 17
Property held under an operating lease –
owner -occupied
Property lease to another party under a
finance lease
Property sale and leaseback
Trading properties – property (including
investment property) intended for sale in
the normal course of business or being
built or developed for that purpose
Property held for sale, or included in a
disposal group that is held for sale.
Assets received in exchange for loans
(taking possession of collateral)
IAS 17
Leases. Owner-occupied IAS 16,
Investment property IAS 40.
Leases
Fair value (accounted for as a finance lease under IAS
17).
The lower of fair value and the present value of the
minimum lease payments.
Leasing costs expensed.
IAS 17
Leases
IAS 17
IAS 2
Leases
Inventories (Properties held for sale that meet the
criteria of IFRS 5 should be recorded according to
IFRS 5 – see below. These are generally not in the
normal course of business.)
Non-current assets held for sale and discontinued
operations
Non-current assets held for sale and discontinued
operations
Property, plant and equipment (see Property acquired
in an exchange of assets above)
Construction contracts
IFRS 5
IFRS 5
IAS 16
Property provided as part of a
construction contract
Future costs of dismantling, removal and
site restoration.
IAS 11
IAS 37
Provisions, contingent liabilities and contingent
assets (see also IFRIC 1, IFRIC 5)
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Account receivable equal to the net investment in the
lease.
As operating lease or finance lease, as appropriate
Lower of cost and net realisable value.
Lower of carrying amount and fair value less costs to
sell.
Lower of fair value less costs to sell and carrying
amount of the loan net of impairment at the date of
exchange.
(see HSBC plc Annual Report 2005 page 247)
Stage of contract completion or cost.
Present value of the expected costs, using a pre-tax
discount rate.
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IAS 11 CONSTRUCTION CONTRACTS
Notes to the table on the previous page.
Note 1: Where an asset is revalued, increases in carrying amounts
above cost are recorded as revaluation surplus, in equity.
Using fair values, all changes in fair value are recorded in
the income statement.
Reductions below cost are recorded in the income statement
under both methods.
Note 2. In the cases of cost or revaluations, the carrying value will
be reduced by accumulated depreciation and accumulated
impairment (see IAS 36).
This would reduce your loss, but not eliminate it. Recognise the
loss immediately.
2. The stage of completion.
3. The amount of profits on other contracts.
Example:
You have five separate construction contracts with the same client.
Your project in France is hit by strikes, which means additional
costs, and penalties for late completion. This will create a loss for
the project, though the four other projects will make enough profits
to cover the loss.
Workbooks are available on our website on each standard that
explain each accounting treatment with examples.
You must still recognise the loss on the French project
immediately.
2
Changes In Estimates
The percentage of completion method is calculated on a cumulative
Recognition of Expected Losses and Changes in
Estimates
basis, in each period. It is based on current estimates. A change in
Any anticipated excess of total contract costs over total contract
revenue should be recognised immediately.
estimates of final revenue, or costs, is recognised in the period that
This recognition should happen, regardless of:
the change is made.
1. Whether or not work has started on the contract.
Example:
You are going to build a financial services centre. You hire staff,
machinery and materials. You travel to the site, and find that the
land is subsiding. The client offers another site, but for the same
contract price.
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IAS 11 CONSTRUCTION CONTRACTS
3
Disclosure
An enterprise should disclose:
1) the amount of contract revenue recognised as revenue in
the period;
2) the methods used to determine the contract revenue
recognised in the period; and
3) the methods used to determine the stage of completion of
contracts in progress.
An enterprise should disclose each of the following for contracts in
progress at the balance sheet date:
1. the aggregate amount of costs incurred and recognised
(less recognised losses) to date
2. the amount of advances received; and
3. the amount of retentions
Retentions are amounts of progress billings, which are not paid until
the satisfaction of conditions specified in the contract for the
payment of such amounts or until defects have been rectified.
Progress billings are amounts billed for work performed on a
contract whether or not they have been paid by the client.
Advances are amounts received by the contractor before the
related work is performed.
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An enterprise should disclose:
(a. the gross amount due from clients for contract work as an
asset; and
(b. the gross amount due to clients for contract work as a
liability.
The gross amount due from clients for contract work is the net
amount of:
(a. costs incurred plus recognised profits; less
(b. the sum of recognised losses and progress billings
for all contracts in progress for which costs incurred plus
recognised profits (less recognised losses) exceeds
progress billings.
The gross amount due to clients for contract work is the net amount
of:
(a. costs incurred plus recognised profits; less
(b. the sum of recognised losses and progress billings
for all contracts in progress for which progress billings exceed costs
incurred plus recognised profits (less recognised losses).
An enterprise discloses any contingent liabilities and contingent
assets in accordance with IAS 37 Provisions, Contingent Liabilities
and Contingent Assets.
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IAS 11 CONSTRUCTION CONTRACTS
Contingent liabilities and contingent assets may arise from such
items as warranty costs, claims, penalties or possible losses.
4
Specific Examples
The stage of completion is determined by calculating the proportion
that costs incurred for work done so far bear to the estimated total
costs.
A summary of the financial data during the construction period is
given on the next page:
Example 1: Determination of Contract Revenue and Expenses
The stage of completion for year 2:
The following example illustrates one method of determining the
stage of completion of a contract, and the timing of the recognition
of contract revenue and expenses.
5.040/8.400 = 60%, so we recognise revenue to date of 60% 10.000 * 60% = 6.000.
A construction contractor has a fixed-price contract for $10,000 to
build a training centre above a shopping mall. The contractor's
initial estimate of contract costs is $7,500. It will take 3 years to
build.
60%. is determined by excluding costs incurred for work performed
to date the 300 of materials for use in year 3.
The amounts of revenue, expenses and profit recognised in the
income statement in the three years are as follows:
By the end of year 1, the contractor's estimate of contract costs has
increased to $8,400 (and remains so the end of year 2).
At the end of year 2, costs incurred to date include $300 for
materials to be used in year 3.
The total costs at the end of year 2 are 5.340.
From this, we deduct 300 (expenses relating to year 3 - such as
materials that have not yet been used)
Year 1 ($000’s)
To
Date
Recognised in Recognised in
prior years
current year
leaving 5.040 as the total costs to date.
In year 3, the client approves a variation resulting in an increase in
contract revenue of $500 and estimated additional contract costs of
$250.
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IAS 11 CONSTRUCTION CONTRACTS
Revenue (10,000 x
33%)
3,333
-
3,333
Expenses (7,500 x
33%)
2,500
-
2,500
833
-
833
Revenue (10,000 x
60%)
6,000
3,333
2,667
Expenses (8,400 x
60%)
5,040
2,500
2,540
Profit
Year 2
Profit
960
833
127
For contract 1, the client has made an advance to the contractor for
work not yet performed.
The status of its contracts in progress at the end of year 1 is as
follows:
Total
($000’s)
1
2
Contract Revenue
1,600
1,000
2,600
Contract Expenses
1,250
-
1,100
2,350
60
60
350
-160
190
1,700
1,100
2,800
1,250
1,100
2,350
450
-
450
Expected Losses
Recognised profits less
recognised losses
Contract Costs incurred in
the period
Year 3
Revenue (10,500 x
100%)
10,50
0
6,000
4,500
Expenses
8,650
5,040
3,610
Profit
1,850
960
890
Contract Costs incurred
recognised as contract
expenses in the period (as
above)
Specific example 2:
Contract Costs that relate
to a future period
Contract Disclosures
Contract Revenue (as
above)
1,600
1,000
2,600
In the next example, another contractor has reached the end of its
first year of operations.
Progress Billings
1,600
850
2,450
-
150
150
Its contracts’ costs incurred have been paid for in cash.
All its progress billings and advances have been received in cash.
Contract costs incurred for contract 2 include the cost of materials
that have been purchased for a future period.
Advances
250
-
250
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Unbilled Contract Revenue
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IAS 11 CONSTRUCTION CONTRACTS
The last 2 amounts
above are calculated as
follows:
The amounts to be disclosed are:
Contract revenue recognised in the
period
2,600
Contract costs incurred and
recognised profits (less recognised
losses) to date
2,990
Advances received
Gross amount due from clients for
contract
work - presented as an asset
Gross amount due to clients for
contract
work -presented as a liability
Total
1700
1100
2800
350
-160
190
2050
940
2990
Progress billings
1600
1000
2600
Due from clients
450
-
450
-
-60
-60
Recognised profits less
recognised losses
Subtotal
Due to clients
-60*
2
Contract Costs incurred
250
450*
1
Specific example 3:
Contract costs should comprise:
* Please see the following table.
i) costs that relate directly to the specific contract;
ii) costs that are attributable to contract activity in general and can
be allocated to the contract; and
iii) such other costs as are specifically chargeable to the client
under the terms of the contract.
The following table highlights the types of costs that should be
included in construction work in progress:
Description of cost
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Included
Excluded
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IAS 11 CONSTRUCTION CONTRACTS
Labour costs (including supervision)
warranty costs
Costs of materials used in construction
Claims from third parties relating to the
contract
Construction overheads
* unless the reimbursement is specified in
the contract
Insurance (include contract-specific
insurance and an allocation of general
insurance)
General administration and selling costs
Specific example 4:
*
Depreciation of plant and equipment used
on the contract
A variation is included in contract revenue when:
Depreciation of idle plant and equipment
that is not used on a particular contract
i) it is probable that the client will approve the variation and the
amount of revenue arising from the variation; and
ii) the amount of revenue can be reliably measured.
Costs of moving plant, equipment and
materials to and from the contract site
Claims are only included in contract revenue when:
Costs of hiring plant and equipment
i) negotiations have reached an advanced stage and it is probable
that the client will accept the claim; and
Costs for clean-up at end of contract
Research and development costs
Costs of variations and claims to be included in contract work
in progress
*
ii) the amount the client will probably accept can be measured
reliably.
Borrowing costs
Costs of design and technical assistance
that is directly related to the contract
Estimated costs of rectification and
guarantee work, including expected
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Should the variations and claims to the contract be included in
contract revenue?
Background
Solution
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IAS 11 CONSTRUCTION CONTRACTS
to delays caused by the
client itself.
At year-end the following
variations and claims occurred
on a contract:
i) the client approved changes
to the contract’s design
specifications with a total
cost of 5,000.
ii) due to poor weather, the
contract will overrun by 3
months. This will lead to an
increase in costs of 3,000.
The client will probably not
approve the amount of
revenue arising from the
variation.
contract price (revenue).
Specific example 5:
Yes, all criteria are met. The
5,000 can be included in the
contract price (revenue).
No, the client will probably not
approve the variation amount.
The additional costs already
incurred should be included in the
calculation of WIP if the contract
is still profitable. However, a lower
expected profit margin should be
recognised because of the
additional costs incurred. The
total expected loss should be
recognised immediately if the
additional costs will result in a loss
on the contract.
iii) due to unforeseen
No, negotiations have not reached
circumstances the
an advance stage where it is
contractor incurred
probable the client will accept the
additional costs in the
claim. The contractor should
current year on the contract. include the additional costs in the
Negotiations to obtain the
WIP calculation and recognise a
client’s acceptance of these lower expected profit margin due
claims are in early stages. to the additional costs incurred.
iv) the client will probably
Yes, all criteria are met. The
accept a claim of 2,000 due 2,000 can be included in the
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1. Background
H is building a parking area for $300,000 for its client.
The client has paid $250,000 so far.
$250,000 is accounted as 'payment in advance' in H's financial
statements.
But it is actually H's sales revenue, is that correct?
Answer
No, it is a 'payment in advance' shown as a liability.
For example, if a client pays H $250,000 today in advance for a
parking area that H has not started to build, and for which no costs
have been incurred, H cannot record any revenue.
Advance payments and sales contracts do not change the
percentage of completion.
H records the revenue (possibly revenue receivable) in proportion
to the work done as percentage of the whole work.
The three options in calculating Revenue, depending on the level of
knowledge of the transaction’s final outcome are:
1.
2.
Anticipating a profit: Percentage of completion method.
Anticipating Break-Even: Recovery of costs, only.
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IAS 11 CONSTRUCTION CONTRACTS
3.
Anticipating a loss: Non-recovery of costs (but full expensing
of costs).
Accounting entries will be:
Specific example 6:
2. Background
H will build 1,000 hotel rooms within a leisure complex, each will
cost $150,000, H will be paid $300,000 per room.
The total cost of the project estimated to be: 1,000 x 150,000 =
$150,000,000.
($millions.)
Contract Revenue
200
Contract Expenses
100
Expected Losses
0
Recognised profits less recognised losses
100
Contract Costs incurred in the period
H has received $160,000,000 as progess payments.
As of December 31, the costs incurred on the project are: $
100,000,000
(Costs incurred relating to future work on the contract, including
advance payments to subcontractors, should not be included in the
calculation.)
Contract Costs incurred recognised as
contract expenses in the period (as above).
Contract Costs that relate to a future period
100
100
0
(This is to balance any cash paid for
expenses for work to be done in future
periods.)
Answer
Contract Revenue (as above).
200
Stage of completion= $ 100,000,000 / $ 150,000,000 => 66,66%
Progress Billings
160
Assuming that there are no losses on the contract, (no excess
costs) the cost will be $ 100,000,000
Unbilled Contract Revenue
and the revenue will be $ 100,000,000 /$ 150,000,000 * $
300,000,000 = $ 200,000,000.
(This is to balance any cash paid to
subcontractors for work to be done in
future periods.)
Advances (to subcontractors)
40
0
Profit = $ 100,000,000
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IAS 11 CONSTRUCTION CONTRACTS
Further point
3. An effective internal financial budgeting and reporting system to
control construction contracts is:
Background
The rooms are now fully built, but the hotel complex has not yet
been registered with the authorities.
Answer
If the rooms are ready for occupaancy, they should be considered
as complete if there is a reasonable expectation that there will be
no problem (other than a time delay) with the registration.
Specific examples 5 + 6 were provided by Mr. Begum Kadioglu, of
Marmara University, Turkey
5
Multiple Choice Questions
1. The start and finish of Construction Contracts normally fall into:
1) Helpful.
2) Unnecessary.
3) Required.
4. Cost-escalation clauses may be a feature of fixed-price
contracts:
1) True.
2) False.
5. In a cost-plus contract, you can charge:
1) All costs plus a profit margin.
2) Costs agreed under the contract, plus an agreed profit.
6. You can combine and segment construction contracts:
1) the same accounting period.
2) different accounting periods.
2. A key issue of the standard is:
1) The timing of recognition of contract revenue and contract
costs.
2) Selection of reporting currency.
3) Balance sheet structure.
1) To reduce work.
2) To reflect economic reality, under specified conditions.
7. A contract may provide for an additional asset at the client’s
option, or by way of an amendment.
Can this be treated as an additional contract?
1) No.
2) Maybe.
8. Contract revenue should comprise:
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IAS 11 CONSTRUCTION CONTRACTS
1) All cash flows.
2) Initial revenue agreed, plus variations, claims and incentive
payments.
9. Variations can only increase revenue.
1) True.
2) False.
10. Claims relate to costs included in the contract price.
1) True.
2) False.
11. Incentive payments can be included in the revenue at the start
of the contract.
1) True.
2) False.
12. Contract estimates may be revised.
1) True.
2) False.
13. Contract costs only include costs that relate specifically to the
contract.
1) True.
2) False.
14. Incidental income, such as from the sale of scrap materials,
should be shown as:
1) Revenue.
2) A deduction from costs.
15. Development costs can be charged to contract costs.
1) True.
2) False.
16. Borrowing costs can be charged to contract costs.
1) True.
2) False.
17. Costs incurred in securing contracts may be included in contract
costs.
1) True.
2) False.
18. Any expected loss on the contract should be:
1)
2)
3)
4)
Ignored.
Recognised at the end of the contract.
Spread over the life of the contract.
Recognised immediately.
19. Contract costs that relate to future work on the contract:
1) Can be ignored.
2) Should be expensed immediately.
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30
IAS 11 CONSTRUCTION CONTRACTS
3) May be treated as an asset.
24. Changes in estimates are:
20. Advances paid to subcontractors:
1) Can be ignored.
2) Should be expensed immediately.
3) May be treated as an asset.
21. If revenue that has already been recognised may not be paid,
the uncollectible amount:
1) Is deducted from revenue.
2) Is recognised as an expense.
22. When using the stage of completion method of calculation, the
main reference is:
1) The client.
2) Internal records.
3) The contract.
23. When the outcome of a contract cannot be estimated:
1) Revenue should not be recognised.
2) Some revenue may be recognised.
3) All revenue can be recognised.
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1) Recognised in the period that the change is made.
2) Recognised at the end of the contract.
3) Ignored.
6
Exercise Questions
1. The Determination of Contract Revenue and Expenses
(Amounts expressed in $000’s).
A construction contractor has a fixed-price contract for $30,000 to
build a tunnel. The contractor's initial estimate of contract costs is
$22,500. It will take 3 years to build the tunnel.
By the end of year 1, the contractor's estimate of contract costs has
increased to $25,200.
In year 3, the client approves a variation resulting in an increase in
contract revenue of $1,500 and estimated additional contract costs
of $750. At the end of year 2, costs incurred include $900 for
materials to be used in year 3.
The stage of completion is determined by calculating the proportion
that costs incurred for work done so far bear to the estimated total
costs.
A summary of the financial data during the construction period is as
follows:
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IAS 11 CONSTRUCTION CONTRACTS
(Please complete the table.)
($000’s.
($000’s) Year
1
Year
2
Year
3
1.1.1
1.1.2
Initial amount of revenue
agreed in contract
Variation
Total contract revenue
Contract costs incurred to
date
Contract costs to complete
Total estimated contract
costs
Recognised
in prior
years
Recognised
in current
year
Year 1
Revenue (30,000 x
33%)
-
Expenses (22,500 x
33%)
-
Profit
-
Year 2
22,50
0
25,20
0
25,95
0
33%
60%
100%
Estimated profit
Stage of completion
To
Date
Revenue (30,000 x
60%)
Expenses (25,200 x
60%)
Profit
The stage of completion for year 2 (60%. is determined by
excluding costs incurred for work performed to date the 900 of
materials for use in year 3)
Year 3
The amounts of revenue, expenses and profit recognised in the
income statement in the three years are as follows:
Expenses
(Please complete the table.)
Revenue (31,500 x
100%)
Profit
2. Contract Disclosures
In the next example, another contractor has reached the end of its
first year of operations.
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IAS 11 CONSTRUCTION CONTRACTS
Both its contracts’ costs incurred have been paid for in cash.
All its progress billings and advances have been received in cash.
Contract costs incurred for contract 2 include the cost of materials
that have been purchased for a future period.
For contract 1, the client has made an advance to the contractor for
work not yet performed.
The status of its contracts in progress at the end of year 1 is as
follows:
($000’s.
Total
1
2
Contract Revenue
4,800
3,000
7,800
Contract Expenses
3,750
3,300
7,050
-
180
180
Recognised profits less
recognised losses
1,050
-480
570
Contract Costs incurred in
the period
5,100
3,300
8,400
3,750
3,300
6,950
1,350
-
1,350
Contract Revenue (as
above.
4,800
3,000
7,800
Progress Billings
4,800
2,550
18,00
0
-
450
15,12
0
750
-
750
Expected Losses
Contract Costs incurred
recognised as contract
expenses in the period (as
above.
Contract Costs that relate
to a future period
Unbilled Contract Revenue
Advances
(Please complete the following table.)
The amounts to be disclosed are:
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IAS 11 CONSTRUCTION CONTRACTS
The last 2 amounts
above are calculated as
follows:
Contract revenue recognised in the
period
2
Total
Contract Costs incurred
Contract costs incurred and
recognised profits (less recognised
losses. to date
Recognised profits less
recognised losses
Subtotal
Advances received
Progress billings
Gross amount due from clients for
contract
work - presented as an asset in
accordance
Gross amount due to clients for
contract
work -presented as a liability
1
Due from clients
Due to clients
7
Solutions
Answers to multiple-choice questions:
(Please Complete the following table.
1. 2.
2. 1.
3. 3.
4. 1.
5. 2.
6. 2.
7. 2.
8. 2.
9. 2.
10. 2.
11. 2.
12. 1.
13. 2.
14. 2.
15. 1.
16. 1.
17. 1.
18. 4.
19. 3.
20. 3.
21. 2.
22. 3.
23. 2.
24. 1.
Answers to exercise questions:
1.
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IAS 11 CONSTRUCTION CONTRACTS
($000’s.
($000’s.
Year
1
Year
2
Year
3
30,00
0
30,00
0
30,00
0
-
-
1,500
30,00
0
30,00
0
31,50
0
Contract costs incurred to
date
7,500
16,02
0*
25,95
0
Contract costs to complete
15,00 9,180*
0
*
-
Total estimated contract
costs
22,50
0
25,20
0
25,95
0
Estimated profit
7,500
4,800
33%
60%
Initial amount of revenue
agreed in contract
Variation
Total contract revenue
Stage of completion
To
Date
Recognised
in prior
years
Recognised
in current
year
Year 1
Revenue (30,000 x
33%)
9,999
-
9,999
Expenses (22,500 x
.33%)
7,500
-
7,500
Profit
2,499
-
2,499
Revenue (30,000 x
.60%)
18,00
0
9,999
8,001
*15,12
0
7,500
7,620
5,550
Expenses (25,200 x
.60%)
100%
Profit
2,880
2,499
381
Revenue (31,500 x
100%)
31,50
0
18,000
13,500
Expenses
25,95
0
15,120
10,830
Profit
5,550
2,880
2,670
Year 2
Year 3
*The stage of completion for year 2 =
60% * 25,200= 15120 plus 900 of materials for use in year 3
=16,020.
** 10,080 – 900 already incurred in year 2 = 9,180.
The amounts of revenue, expenses and profit recognised in the
income statement in the three years are as follows:
* *The stage of completion for year 2 = 60% * 25,200= 15120.
Contract costs incurred to date = 16,020
Less: 900 of materials for use in year 3 = 15120.
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IAS 11 CONSTRUCTION CONTRACTS
2. The amounts to be disclosed are:
Contract revenue recognised in the
period
7,800
Contract costs incurred and
recognised profits (less recognised
losses. to date
8,970
Advances received
750
Gross amount due from clients for
contract
work - presented as an asset in
accordance
Gross amount due to clients for
contract
work -presented as a liability
The last 2
amounts above
are calculated as
follows:
Contract Costs
incurred
Recognised
profits less
recognised losses
Subtotal
Progress billings
Due from clients
Due to clients
1
-180
2
5 100
1,350
Total
3 300
8 400
480
570
6 150
4 800
1 350
2 820
3 000
-
8 970
7 800
1 350
-
-180
-180
1 050
-
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