International GAAP 2012: Generally Accepted Accounting Practice under International Financial Reporting Standards

Chapter 25

Construction contracts

1 Introduction

1.1 Scope and definitions of IAS 11

1.2 Whether an arrangement is a construction contract

1.3 Service concession agreements

2 Combination and Segmentation of Contracts

2.1 Options for the construction of an additional asset

3 Contract Revenue, Costs and Expenses

3.1 Contract revenue

3.2 Contract costs

3.2.1 Borrowing costs

3.3 The recognition of contract revenue and expenses

3.3.1 Types of construction contract

3.3.1.A Fixed price contracts

3.3.1.B Cost plus contracts

3.3.2 The stage of completion method

3.3.3 Changes in estimates

3.3.4 The determination of contract revenue and expenses

3.3.5 Inability to estimate the outcome of a contract reliably

3.3.6 Loss-making contracts

3.3.7 Contract inefficiencies

3.3.8 Contracts that contain sales of assets and construction contracts

4 Disclosure Requirements of IAS 11

List of examples

Example 25.1: Determination of revenue

Example 25.2: Determination of revenue – exclusion of unapplied costs

Example 25.3: Cumulative example – the determination of contract revenue and expenses

Example 25.4: Segmented construction contract

Example 25.5: Disclosure of accounting policies

Example 25.6: Disclosure of numerical information regarding construction contracts

1 Introduction

IAS 11 – Construction Contracts – is a standard designed under the historical cost system to deal with the accounting issues raised by its subject. Like a number of other older standards that have not yet been revised significantly ...