Long-Term Construction Contracts Flashcards
What accounting standards use completed contract method?
US GAAP only
What contract method recognizes income only on completion (or substantial completion) of the contract?
Completed contract method
The excess of accumulated costs over related billings should be reflected in the balance sheet as?
Current asset
The excess of accumulated billings over related costs should be reflected as?
Current liability
What are the account names representing the same contract asset and should be shown net of their related contra accounts?
Progress billings and construction in progress
What are 2 names of current asset accounts?
Due on accounts receivable and cost of uncompleted contracts in excess of progress billings
What is an account name for a current liability account?
Progress billings on uncompleted contracts in excess of cost
Where should applicable overhead and direct costs be charged to in the completed contract method?
Construction in progress account
Where should billings and/or cash received be credited to?
Advances on construction in progress account(liability)
Why is the excess of either the construction in progress account or the advances account over the other is classified as current?
The current operating cycle concept
When should losses be recognized?
In full when discovered
What rule is used when recognizing losses when discovered?
Rule of conservatism
Is the completed contract method permitted under IFRS?
No
What method is used under IFRS?
Percentage of completion method
When should a provision for the loss on the entire contract be made?
When current estimates of the total contract costs indicate a loss
What rule is used for the provision of recognizing losses in the percentage of completion method?
Rule of conservatism
What are the 2 account names of current assets in the percentage of completion method?
Due on accounts receivable and costs and estimated earnings of uncompleted contracts in excess of progress billings
What is the account name of current liability under the percentage of completion contract?
Progress billings in excess of cost and estimated earnings on uncompleted contracts
What are the steps to accounting for the percentage of completion method?
Step 1: Contract price - Estimated total cost = Gross profit, Step 2: Total cost to date/Total estimated cost of contract, Step 3: Step 1 x Step 2 = PTD, Step 4: PTD at current YE - PTD at beginnin of period = Current year to date GP
How should a change in construction method be reported?
Retrospectively
How to calculate current asset or liability?
Cumulative costs incurred + recognized gross profit - cumulative billings
