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Objective
Accounting Treatment for Contract Revenue.
Allocation of Contract Cost.
Definitions
Construction Contract
rendering of services
cp
which are
destruction or restoration of
assets
and
restoration of environment
following demolition of asset
TYPES OF CONTRACT
SINGLE ASSET
MANY CONTRACTS
MANY ASSETS
ADDITIONAL ASSET
Para 8 conditions
Group of contracts is
negotiated as a single
package and
SINGLE
CONTRACT
PARA 7 CONDITIONS
TO BE SATISFIED
PARA 9 CONDITIONS
TO BE SATISFIED
and
The contracts
are closely interrelated.
and
Contracts are
performed concurrently
or continuously
Price is negotiated
independently
SATISFIED
NOT
SATISFIED
SINGLE
CONTRACT
SEPARATE
CONTRACT
CONTRACT REVENUE:
initial amount of revenue
as agreed in the
contract
CONTRACT REVENUE
Other income
a) variation in contract work
b) claims
c) incentive payments
A variation is an instruction by the customer for a change in the scope of the work to be
performed under the contract.
A claim is an amount that the contractor seeks to collect from the customer or another party as
reimbursement for costs not included in the contract price.
Incentive payments are additional amounts payable to the contractor, if specified performance
standards are met or exceeded.
CONTRACT COST:
CONTRACT COST
DIRECT COST
ALLOCATED COST
NOTE: COST NEITHER ATTRIBUTABLE NOR ALLOCATED TO THE CONTRACT ACTIVITY ( LIKE AOH , SOH , R&D
COST AND DEPRECIATION OF IDLE ASSETS) ARE EXCLUDED FROM CONTRACT COST
Insurance
Cost of designs and specification not directly related to contract
Construction overheads
Portion of general administrative overhead chargeable to the contract as per agreement.
BUT EXCLUDES
o
o
o
o
RECOVERY OF COST
NOT POSSIBLE
INCOMES NOT
RECOVERABLE
TREATED AS EXPENSE
COST INCURRED IN
SECURING THE CONTRACT
RELIABLE ESTIMATIONS
Conditions for reliable estimate
In case of Fixed Price Contracts:
Contract costs to complete and the stage of completion can be measured at the reporting date
DISCLOSURE
Amount of retentions