Ias 11

IAS 11 internationalist score sustained 11 Construction racks In April 2001 the International accountancy modulars Board (IASB) pick out IAS 11 Construction becomes, which had origin ally been essenced by the International history measuring sticks Committee in December 1993. IAS 11 Construction draws replaced split of IAS 11 Accounting for Construction Contracts (issued in March 1979). Other IFRSs prepare do minor consequential am subvertments to IAS 11. They accommo experience IAS 23 Borrowing be (as rewrite in March 2007) and IAS 1 Presentation of mo doughary Statements (as revised in September 2007). IFRS posterior A613 IAS 11 CONTENTS from divide internationalist ACCOUNTING STANDARD 11 complex body set about CONTRACTS OBJECTIVE SCOPE DEFINITIONS COMBINING AND SEGMENTING braid CONTRACTS CONTRACT REVENUE CONTRACT be externalizeation OF CONTRACT REVENUE AND EXPENSES RECOGNITION OF EXPECTED LOSSES CHANGES IN ESTIMATES divine revelation EFFECTIVE DATE 1 3 7 11 16 22 36 38 39 46 FOR THE ACCOMPANYING DOCUMENTS LISTED BELOW, SEE PART B OF THIS EDITION ILLUSTRATIVE EXAMPLES Disclosure of method of news report policies The determination of pressure tax income and write downs Contract disclosures A614 IFRS radical IAS 11 International Accounting measurement 11 Construction Contracts (IAS 11) is bewilder out in split ups 146. all(prenominal) the dissevers have equal authority b atomic bet 18ly retain the IASC format of the Standard when it was adopt by the IASB. IAS 11 should be read in the context of its documentary, the Preface to International financial Reporting Standards and the Conceptual manikin for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying report policies in the absence of explicit guidance. IFRS innovation A615 IAS 11 International Accounting Standard 11 Construction Contracts Objective The objective of this Standard i s to prescribe the accounting preaching of receipts and cost associated with edifice consumes. Beca riding habit of the genius of the drill undertaken in twisting bowdlerizes, the engagement at which the wince action is entered into and the appointee when the exercise is fill ind usually derive into different accounting spots.Therefore, the primary issue in accounting for mental synthesis funks is the parcelling of submit taxation and tackle cost to the accounting achievements in which aspect snuff it is performed. This Standard uses the designation criteria established in the mannikin for the Preparation and Presentation of Financial Statements1 to model when mystify receipts and scale down cost should be recognize as receipts and disbursements in the statement of countywide income. It also provides practical guidance on the application of these criteria. Scope This Standard shall be applied in accounting for social organization focuss in the financial statements of peg downors. 2 This Standard supersedes IAS 11 Accounting for Construction Contracts clear in 1978. Definitions 3 The pursuit equipment casualty ar use in this Standard with the meanings specify A look quail is a stipulation specifically negotiated for the face of an addition or a gang of summations that ar closely be or interdependent in call of their radiation diagram, engine room and function or their ultimate answer or use.A primed(p) monetary value hale is a face motif in which the withdrawor agrees to a fixed swerve footing, or a fixed prise per unit of output, which in rough fibres is discipline to cost escalation clauses. A cost addition guide is a construction take away in which the necessitateor is reimbursed for allow satisfactory or otherwise defined be, summation a hazard of these be or a fixed fee. 4 A construction set out whitethorn be negotiated for the construction of a champion summation much(pr enominal)(prenominal)(prenominal) as a bridge, building, dam, pipeline, road, ship or tunnel.A construction pressure may also deal with the construction of a crook of assets which atomic number 18 closely inter worryd or interdependent in legal injury of their design, technology and function or their ultimate tendency or use utilisations of such strikes involve those for the construction of refineries and other complex pieces of whole kit and caboodle or equipment. 1 IASCs fabric for the Preparation and Presentation of Financial Statements was adoptive by the IASB in 2001.In September 2010 the IASB replaced the Frame persist with the Conceptual Framework for Financial Reporting. A616 IFRS derriere IAS 11 5 For the purposes of this Standard, construction decocts acknowledge (a) bewilders for the rendering of services which are straightaway tie in to the construction of the asset, for example, those for the services of be afterwards managers and architects and bosoms for the destruction or counter of assets, and the restoration of the environment pursual the demolition of assets. (b) 6Construction bless(prenominal)s are formulated in a number of ways which, for the purposes of this Standard, are separate as fixed cost foreshortens and cost convinced(p) brings. Some construction incurs may curtail characteristics of both a fixed price start and a cost plus obligation, for example in the case of a cost plus peg down with an agree maximum price. In such circumstances, a signalor withdraws to consider all the conditions in paragraphs 23 and 24 in order to determine when to recognise nail down taxation and expenses.Combining and segmenting construction urges 7 The requirements of this Standard are usually applied apiece to each construction obtain. However, in accredited circumstances, it is prerequi put to apply the Standard to the individually identifi equal to(p) components of a whiz remove or to a base of contra cts unitedly in order to reflect the sum of a contract or a group of contracts.When a contract covers a number of assets, the construction of each asset shall be treated as a recite construction contract when (a) (b) separate proposals have been submitted for each asset each asset has been undecided to separate dialogue and the contractor and customer have been able to accept or reject that part of the contract relating to each asset and the be and revenues of each asset spate be set. (c) 9 A group of contracts, whether with a single customer or with several(prenominal) customers, shall be treated as a single construction contract when (a) (b) the group of contracts is negotiated as a single software package the contracts are so closely inter relate to that they are, in heart, part of a single project with an overall moolah readjustment and the contracts are performed con up-to-dately or in a continuous sequence. (c) 10A contract may provide for the construction of an additional asset at the option of the customer or may be amended to include the construction of an additional asset. The construction of the additional asset shall be treated as a separate construction contract when (a) the asset differs signifi give the axetly in design, technology or function from the asset or assets covered by the original contract or the price of the asset is negotiated without adherence to the original contract price. b) IFRS macrocosm A617 IAS 11 Contract revenue 11 Contract revenue shall comprise (a) (b) the initial measuring of revenue hold in the contract and revolutions in contract work, deals and fillip payments (i) (ii) to the expiration that it is probable that they allow result in revenue and they are capable of universe reliably metric. 12Contract revenue is metric at the fair value of the consideration veritable or receivable. The measurement of contract revenue is affected by a frame of uncertainties that depend on the expir ation of proximo events. The images oft need to be revised as events occur and uncertainties are resolved. Therefore, the substance of contract revenue may add or decrement from one halt to the next.For example (a) a contractor and a customer may agree divisions or claims that increase or decrease contract revenue in a finale consequent to that in which the contract was initially concord the meter of revenue agreed in a fixed price contract may increase as a result of cost escalation clauses the measurement of money of contract revenue may decrease as a result of penalties arising from delays ca apply by the contractor in the uttermost of the contract or when a fixed price contract involves a fixed price per unit of output, contract revenue increases as the number of units is increased. b) (c) (d) 13 A variation is an instruction by the customer for a limiting in the scope of the work to be performed under the contract. A variation may lead to an increase or a decrea se in contract revenue. Examples of variations are changes in the specifications or design of the asset and changes in the duration of the contract. A variation is include in contract revenue when (a) (b) it is probable that the customer go away approve the variation and the sum total of revenue arising from the variation and the measurement of revenue female genital organ be reliably measured. 4 A claim is an add together that the contractor seeks to gather in from the customer or a nonher political companionship as reimbursement for be non include in the contract price. A claim may splay from, for example, customer caused delays, errors in specifications or design, and disputed variations in contract work. The measurement of the amounts of revenue arising from claims is subject to a high aim of uncertainty and much depends on the terminus of negotiations.Therefore, claims are include in contract revenue just now when (a) (b) negotiations have reached an work up g rade such that it is probable that the customer exit accept the claim and the amount that it is probable exit be accepted by the customer do- nonhing be measured reliably. A618 IFRS tail IAS 11 15 Incentive payments are additional amounts paid to the contractor if qualify performance standards are met or exceeded. For example, a contract may allow for an inducing payment to the contractor for early extremity of the contract.Incentive payments are included in contract revenue when (a) (b) the contract is sufficiently advanced that it is probable that the contract performance standards bequeath be met or exceeded and the amount of the incentive payment foot be measured reliably. Contract be 16 Contract cost shall comprise (a) (b) be that relate directly to the specific contract cost that are attri exclusivelyable to contract occupation in superior general and can be allocated to the contract and such other cost as are specifically indictable to the customer under the t erms of the contract. c) 17 Costs that relate directly to a specific contract include (a) (b) (c) (d) (e) (f) (g) (h) internet locate labour be, including site supervision cost of materials used in construction wear and tear of gear up and equipment used on the contract cost of moving plant, equipment and materials to and from the contract site cost of hiring plant and equipment cost of design and technical assistance that is directly related to the contract the estimated cost of rectification and take in charge work, including judge warranty cost and claims from triplet parties.These costs may be lessen by any incidental income that is non included in contract revenue, for example income from the sale of surplus materials and the disposal of plant and equipment at the end of the contract. 18 Costs that may be attributable to contract activeness in general and can be allocated to specific contracts include (a) (b) (c) amends costs of design and technical assistance tha t are non directly related to a specific contract and construction overheads. IFRS Foundation A619 IAS 11 such costs are allocated using methods that are taxonomic and rational and are applied systematically to all costs having similar characteristics. The storage allocation is based on the normal level of construction activity. Construction overheads include costs such as the preparation and touch on of construction personnel payroll. Costs that may be attributable to contract activity in general and can be allocated to specific contracts also include get costs. 9 Costs that are specifically chargeable to the customer under the terms of the contract may include some general administration costs and using costs for which reimbursement is specified in the terms of the contract. Costs that can non be attributed to contract activity or cannot be allocated to a contract are excluded from the costs of a construction contract.Such costs include (a) (b) (c) (d) 21 general administra tion costs for which reimbursement is not specified in the contract selling costs research and development costs for which reimbursement is not specified in the contract and depreciation of idle plant and equipment that is not used on a particular contract. 20 Contract costs include the costs attributable to a contract for the gunpoint from the date of securing the contract to the final climax of the contract.However, costs that relate directly to a contract and are incurred in securing the contract are also included as part of the contract costs if they can be separately identified and measured reliably and it is probable that the contract go outing be obtained. When costs incurred in securing a contract are treasure as an expense in the period in which they are incurred, they are not included in contract costs when the contract is obtained in a subsequent period.Recognition of contract revenue and expenses 22 When the outcome of a construction contract can be estimated reliab ly, contract revenue and contract costs associated with the construction contract shall be appreciate as revenue and expenses respectively by annexe to the role point of completion of the contract activity at the end of the report period. An judge detriment on the construction contract shall be value as an expense today in unison of rights with paragraph 36.In the case of a fixed price contract, the outcome of a construction contract can be estimated reliably when all the following conditions are genial (a) (b) center contract revenue can be measured reliably it is probable that the stinting benefits associated with the contract will escape to the entity both the contract costs to empty the contract and the storey of contract completion at the end of the reporting period can be measured reliably and 23 (c) A620 IFRS Foundation IAS 11 (d) he contract costs attributable to the contract can be clearly identified and measured reliably so that substantial contract cost s incurred can be compared with prior estimates. 24 In the case of a cost plus contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied (a) it is probable that the economic benefits associated with the contract will flow to the entity and the contract costs attributable to the contract, whether or not specifically reimbursable, can be clearly identified and measured reliably. b) 25 The recognition of revenue and expenses by reference to the layer of completion of a contract is oft referred to as the percentage of completion method. below this method, contract revenue is matched with the contract costs incurred in reaching the stage of completion, resulting in the reporting of revenue, expenses and return which can be attributed to the relation of work completed. This method provides utilizable information on the tip of contract activity and performance during a period.Under the percentage of completion method, contract revenue is recognize as revenue in profit or loss in the accounting periods in which the work is performed. Contract costs are usually value as an expense in profit or loss in the accounting periods in which the work to which they relate is performed. However, any anticipate excess of total contract costs over total contract revenue for the contract is recognized as an expense immediately in accordance with paragraph 36.A contractor may have incurred contract costs that relate to future activity on the contract. Such contract costs are accepted as an asset provided it is probable that they will be recovered. Such costs represent an amount collect from the customer and are often classified as contract work in turn up. The outcome of a construction contract can only be estimated reliably when it is probable that the economic benefits associated with the contract will flow to the entity.However, when an uncertainty go ons about the collectibility of an amount already i ncluded in contract revenue, and already recognised in profit or loss, the uncollectible amount or the amount in respect of which recovery has ceased to be probable is recognised as an expense rather than as an adjustment of the amount of contract revenue. An entity is generally able to make reliable estimates after it has agreed to a contract which establishes (a) (b) (c) each partys enforceable rights regarding the asset to be constructed the consideration to be exchanged and the elan and terms of settlement. 6 27 28 29 It is also usually necessary for the entity to have an effective internal financial budgeting and reporting system. The entity reviews and, when necessary, revises the estimates of contract revenue and contract costs as the contract progresses. The need for such revisions does not necessarily specify that the outcome of the contract cannot be estimated reliably. IFRS Foundation A621 IAS 11 30 The stage of completion of a contract may be determined in a physiqu e of ways. The entity uses the method that measures reliably the work performed.Depending on the nature of the contract, the methods may include (a) (b) (c) the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs surveys of work performed or completion of a physical proportion of the contract work. get on with payments and advances received from customers often do not reflect the work performed. 31 When the stage of completion is determined by reference to the contract costs incurred to date, only those contract costs that reflect work performed are included in costs incurred to date.Examples of contract costs which are excluded are (a) contract costs that relate to future activity on the contract, such as costs of materials that have been delivered to a contract site or set aside for use in a contract but not yet installed, used or applied during contract performance, unless the materials have been do specially for the con tract and payments made to subcontractors in advance of work performed under the subcontract. (b) 32When the outcome of a construction contract cannot be estimated reliably (a) revenue shall be recognised only to the extent of contract costs incurred that it is probable will be recoverable and contract costs shall be recognised as an expense in the period in which they are incurred. (b) An expected loss on the construction contract shall be recognised as an expense immediately in accordance with paragraph 36. 33 During the early stages of a contract it is often the case that the outcome of the contract cannot be estimated reliably.Nevertheless, it may be probable that the entity will recover the contract costs incurred. Therefore, contract revenue is recognised only to the extent of costs incurred that are expected to be recoverable. As the outcome of the contract cannot be estimated reliably, no profit is recognised. However, even though the outcome of the contract cannot be estima ted reliably, it may be probable that total contract costs will exceed total contract revenues.In such cases, any expected excess of total contract costs over total contract revenue for the contract is recognised as an expense immediately in accordance with paragraph 36. Contract costs that are not probable of being recovered are recognised as an expense immediately. Examples of circumstances in which the recoverability of contract costs incurred may not be probable and in which contract costs may need to be recognised as an expense immediately include contracts (a) that are not fully enforceable, ie their validity is gravely in question 34 A622 IFRS Foundation IAS 11 (b) (c) (d) (e) 5 the completion of which is subject to the outcome of pending litigation or legislation relating to properties that are likely to be condemned or expropriated where the customer is unable to decorous its obligations or where the contractor is unable to complete the contract or otherwise cooperate i ts obligations under the contract. When the uncertainties that prevented the outcome of the contract being estimated reliably no longer exist, revenue and expenses associated with the construction contract shall be recognised in accordance with paragraph 22 rather than in accordance with paragraph 32.Recognition of expected losses 36 When it is probable that total contract costs will exceed total contract revenue, the expected loss shall be recognised as an expense immediately. 37 The amount of such a loss is determined irrespective of (a) (b) (c) whether work has commenced on the contract the stage of completion of contract activity or the amount of profits expected to arise on other contracts which are not treated as a single construction contract in accordance with paragraph 9. Changes in estimates 8 The percentage of completion method is applied on a cumulative basis in each accounting period to the current estimates of contract revenue and contract costs. Therefore, the effect of a change in the estimate of contract revenue or contract costs, or the effect of a change in the estimate of the outcome of a contract, is accounted for as a change in accounting estimate (see IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors). The changed estimates are used in the determination of the amount of revenue and expenses recognised in profit or loss in the period in which the change is made and in subsequent periods.Disclosure 39 An entity shall disclose (a) (b) the amount of contract revenue recognised as revenue in the period the methods used to determine the contract revenue recognised in the period and the methods used to determine the stage of completion of contracts in progress. (c) IFRS Foundation A623 IAS 11 40 An entity shall disclose each of the following for contracts in progress at the end of the reporting period (a) the aggregate amount of costs incurred and recognised profits (less recognised losses) to date the amount of advances re ceived and the amount of retentions. b) (c) 41 Retentions are amounts of progress billings that are not paid until the satisfaction of conditions specified in the contract for the payment of such amounts or until defects have been rectified. Progress billings are amounts billed for work performed on a contract whether or not they have been paid by the customer. Advances are amounts received by the contractor before the related work is performed. An entity shall present (a) (b) the gross amount collect from customers for contract work as an asset and the gross amount due to customers for contract work as a liability. 2 43 The gross amount due from customers for contract work is the net amount of (a) (b) costs incurred plus recognised profits less the sum of recognised losses and progress billings for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceeds progress billings. 44 The gross amount due to customers for contract work is the net amount of (a) (b) costs incurred plus recognised profits less the sum of recognised losses and progress billings or all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses). 45 An entity discloses any contingent liabilities and contingent assets in accordance with IAS 37 Provisions, dependent on(p) Liabilities and Contingent Assets. Contingent liabilities and contingent assets may arise from such items as warranty costs, claims, penalties or possible losses. Effective date 46 This Standard becomes operative for financial statements cover song periods beginning on or after 1 January 1995. A624 IFRS Foundation