IAS 11 – Construction Contracts
Objective: The accounting treatment for revenue and costs associated with construction contracts in the financial statements of the contractor.
Contract revenue: should include the amount agreed in the initial contract, together with variations in the contract, work claims and incentive payments to the extant.
Contract Costs: should include costs that related directly to the specific contract, cost that attributable to general contract activity and that can be reasonably allocated to the contract, together with other costs as are directly attributable to the customer under the term of the contract.
When the outcome of a construction contract can be estimated reliably, revenue and cost should be recognized by reference to the stage of completion of contract activity.
If the outcome cannot be estimated reliably, no profit should be recognized; instead contract revenue should be recognized only to the extent that contract cost incurred is expected to be recovered.
If it is probable that the total contract costs will exceed total contract revenue the expected loss should be recognized immediately.
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