Introduction and the Framework


As a default, when the outcome of the contract cannot be estimated reliably, costs incurred to date are expensed and equal revenue may be recognized as long as collection is probable



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As a default, when the outcome of the contract cannot be estimated reliably, costs incurred to date are expensed and equal revenue may be recognized as long as collection is probable

  • IAS 11 – Recognition of Contract Revenue and Expenses
  • As a default, when the outcome of the contract cannot be estimated reliably, costs incurred to date are expensed and equal revenue may be recognized as long as collection is probable
  • This may be the case for instance in the early stages of a contract. If total costs are likely to exceed total revenues, this excess loss must be recognized
  • Finally, any costs incurred that are not recoverable must be expensed even if no revenue is recognized
  • Illustration 8-3 (on the next slide) shows how revenue and cost recognition changes depending on the likelihood of the outcome
  • IAS 11 – Recognition of Contract Revenue and Expenses

Various disclosures are required including the following:

  • IAS 11 – Disclosure and Presentation
  • Various disclosures are required including the following:
    • • Amount of revenue recognized in the period
    • • Method used to determine the above, as well as the
    • stage of completion
    • • For contracts in process, the amount of costs incurred and
    • profit recognized to date, advance received, and amount
    • of retentions (unpaid billings)
    • • Contingent assets/liabilities

On the statement of financial position:

  • IAS 11 – Disclosure and Presentation
  • On the statement of financial position:
    • The gross amount due from customers is presented as an asset if it is a debit (costs plus recognized profits less recognized losses and progress billings), or
    • The gross amount due to customers is presented as a liability if it is a credit
  • Current GAAP Comparisons
  • Page 102 of 164 of
  • http://www.kpmg.co.uk/pubs/IFRScomparedtoU.S.GAAPAnOverview(2008).pdf

Siemens AG

  • IFRS Financial Statement Disclosures
  • Siemens AG
  • http://w1.siemens.com/annual/07/pool/download/pdf/e07_00_gb2007.pdf.
  • Revenue Recognition
  • on Construction Contracts page 223 of 336
  • Looking Ahead
  • The IASB is not currently looking at accounting for construction contracts specifically, although the accounting may be affected by the revenues project
  • End-of-Chapter Practice
  • End-of-Chapter Practice
  • 8-3 Monday Morning Limited is a construction company. During the year, it had one very large construction project underway. The five-year fixed price contract was signed at the beginning of the year, and the project is on schedule and is 20% complete to date. The following costs were incurred during the year:
  • Materials costs (some of which are still on hand)
  • Labor costs for builders
  • Salary of site supervisor
  • Salary of head office project manager
  • Depreciation on construction machinery
  • Insurance
  • Head office secretarial (for typing up the contracts and doing the accounting for the contract)
  • Instructions
  • Discuss whether the costs are contract costs.
  • End-of-Chapter Practice
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  • Agriculture: IAS 41
  • Wiecek and Young
  • IFRS Primer
  • Chapter 9

Related standards

  • Agriculture
  • Related standards
  • IAS 41
  • Current GAAP comparisons
  • IFRS financial statement disclosures
  • Looking ahead
  • End-of-chapter practice
  • Related Standards
  • FAS 144 Accounting for the Impairment or Disposal of Long-lived Assets
  • FAS 157 Fair Value Measurements
  • SOP 85-3 Accounting by Agricultural Producers and Agricultural Cooperatives
  • Related Standards
  • IAS 1 Presentation of Financial Statements
  • IAS 2 Inventories
  • IAS 18 Revenues
  • IAS 37 Provisions, Contingent Liabilities and Contingent Assets
  • IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
  • IAS 41 – Overview

Standard deals with the accounting for agricultural activity specifically covering:

  • IAS 41 – Objective and Scope
  • Standard deals with the accounting for agricultural activity specifically covering:
    • Biological assets
    • Agricultural produce at the point of harvest
    • Related government grants
    • Excludes land and intangible assets
  • IAS 41 is considered a significant addition to GAAP since the economies of many global countries rely on agriculture
  • In general, agricultural activities have the following common characteristics: they are capable of biological transformation and this transformation is managed, facilitated, measured, and monitored by the entity
  • IAS 41 – Objective and Scope


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