IAS 11. Construction Contracts

Transcription

1 IAS 11 Construction Contracts 1

2 Definitions (IAS 11.3 & IFRIC 15.11) A contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent Bridge, dam, pipeline etc Destruction or restoration Ships Refineries Buildings Services directly related to construction of an asset 2

3 Combining & Segmenting (IAS ) CONTRACT CONTRACT Combine Negotiated as a single package So closely interrelated that they are, in effect, a single project Contracts performed concurrently or in a continuous sequence CONTRACT Segment Separate proposals submitted for each asset Each asset subject to separate negotiation Cost and revenues for each asset can be identified 3

4 Contract revenue (IAS ) Is recognised at fair value of consideration receivable and comprises: (a) the initial amount of revenue agreed in the contract; and (b) variations in contract work, claims and incentive payments: (i) to the extent that it is probable that they will result in revenue; and (ii) they are capable of being reliably measured. The uncertainties relating to variations, claims and incentives result in estimates being made and revised as events occur and uncertainties are resolved 4

5 Contract costs (IAS ) (a) costs that relate directly to the specific contract eg site labour, including site supervision; materials used in construction; depreciation of plant and equipment used on the contract; moving plant, equipment and materials to / from the contract site; estimated costs of rectification and guarantee work (b) costs that are attributable to contract activity in general and can be allocated to the contract eg insurance design and technical assistance not directly related to a specific contract construction overheads borrowing costs (c) such other costs as are specifically chargeable to the customer under the terms of the contract. 5

6 Pre-contract costs (IAS 11.21) Contract costs include the costs attributable to a contract for the period from the date of securing the contract to the final completion of the contract. Pre-contract costs relate directly to a contract and are incurred in securing the contract pre-contract costs are also included as part of the contract costs if: they can be separately identified measured reliably and it is probable that the contract will be obtained. Costs incurred in securing a contract prior to these criteria being met are recognised as an expense in the period in which they are incurred they are not included in contract costs when the contract is obtained in a subsequent period 6

7 Recognition of contract revenue and expenses When the outcome of a construction contract can be estimated reliably recognise contract revenue and contract costs by reference to the stage of completion of the contract activity (percentage of completion method) recognise any expected loss on the construction contract as an expense immediately in accordance with IAS (IAS 11.22) When the outcome of a construction contract cannot be estimated reliably revenue shall be recognised only to the extent of contract costs incurred that it is probable will be recoverable; and contract costs shall be recognised as an expense in the period in which they are incurred recognise any expected loss on the construction contract as an expense immediately in accordance with IAS (IAS 11.32) 7

8 Accounting IAS 11 Appendix examples Fixed Price Contracts profitable outcome Use the percentage of completion method if able to reliably estimate outcome of contract. Contract 1 Estimated total revenue 100 Costs to date 48 Costs to complete 32 Total estimated costs 80 Stage of completion 60% Progress billings 58 Payments received 50 60% P&L Revenue 60 Cost of sales (48) Profit 12 Balance sheet Gross amounts due 2 from customers for contract work Trade receivables (58-50) 8 Gross amounts due from customers for contract work represents Costs incurred plus recognised profits (48+12); less The sum of recognised losses & progress billings (0+58). 8

9 Accounting - IAS 11 Appendix examples Fixed Price Contracts no reliable outcome If outcome of a contract cannot be estimated reliably no profit should be recognised. Contract 2 Estimated total revenue 100 Costs to date 10 Costs to complete 60 Total estimated costs 70 Stage of completion 10% Progress billings - Payments received - P&L Revenue 10 Cost of sales (10) Profit - Balance sheet Gross amounts due 10 from customers for contract work Trade receivables - Gross amounts due from customers for contract work represents Costs incurred plus recognised profits (10+0); less The sum of recognised losses & progress billings (0+0). 9

10 Accounting - IAS 11 Appendix examples Fixed Price Contracts loss outcome If a contract is expected to be loss making, the loss should be recognised immediately Contract 3 Estimated total revenue 100 Costs to date 72 Costs to complete 48 Total estimated costs 120 Stage of completion 60% Progress billings 58 Payments received 50 60% P&L Revenue 60 Cost of sales (72) Balancing figure (8) Loss (20) Gross amounts due from customers for contract work represents Costs incurred plus recognised profits (72+0); less The sum of recognised losses & progress billings (20+58). Balance sheet Gross amounts due (6) to customers for contract work Trade receivables (58-50) 8 10

11 Disclosures (IAS ) 1. Contract revenue recognised in the period 2. Details of methods used to determine contract revenue recognised in the period 3. Details of methods used to determine stage of completion of contracts in progress 4. Contract costs incurred & recognised profits to date 5. Gross amount due from customers for contract work as an asset 6. Gross amount due to customers for contract work as a liability 7. The amount of advances received 8. The amount of retentions 11

12 Questions 12