F-2 LONG-TERM CONSTRUCTION CONTRACTS

Question 1

Q: Identify two methods of revenue recognition for long-term construction-type contracts under U.S. GAAP and IFRS.

FAR 2-22

Answer 1

U.S. GAAP
• Percentage-of-completion

• Completed-contract

IFRS
• Percentage-of-completion

• Cost recovery

Question 2

Q: For long-term construction-type contracts, when are losses recognized?

FAR 2-23

Answer 2

• Immediately when discovered, regardless of the method used for revenue recognition.

Question 3

State the formula for recognizing the gain/loss on long-term construction-type contracts under the percentage-of-completion method.

FAR 2-24

Answer 3

Total cost to date X T est. G P (Total.est. Cost of C)

• minus “Gross profit recognized to date”

*Total.est. Cost of C = Total estimated cost of contract

*T est. G P = Total estimated gross profit