FAR 2-2: Long-Term Construction Contracts

Question 1

Identify 2 methods of revenue recognition for long-term construction type contracts under U.S. GAAP & IFRS

Answer 1

U.S. GAAP:

• Percentage-of-completion
• Completed-contract

IFRS:

• Percentage-of-completion
• Cost recovery

Question 2

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

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

Answer 3

[(Total cost to date/Total estimated cost of contract) X Total est. gross profit] - Gross profit recognized to date