Ias 11

OBJECTIVE

The objective of this Standard is to prescribe the accounting treatment of revenue and costs associated with construction contracts.
The primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed.

SCOPE

This Standard shall be applied in accounting forconstruction contracts in the financial statements of contractors.
This Standard supersedes IAS 11 Accounting for Construction Contracts approved in 1978.

DEFINITIONS

* The following terms are used in this Standard with the meanings specified:
A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelatedor interdependent in terms of their design, technology and function or their ultimate purpose or use.
A fixed price contract is a construction contract in which the contractor agrees to a fixed contract price, or a fixed rate per unit of output, which in some cases is subject to cost escalation clauses.
A cost plus contract is a construction contract in which the contractor is reimbursed forallowable or otherwise defined costs, plus a percentage of these costs or a fixed fee.

COMBINING AND SEGMENTING CONSTRUCTION CONTRACTS

* When a contract covers a number of assets, the construction of each asset shall be treated as a separate construction contract when:
(a) Separate proposals have been submitted for each asset;
(b) Each asset has been subject to separate negotiation andthe contractor and customer have been able to accept or reject that part of the contract relating to each asset; and
(c) The costs and revenues of each asset can be identified.

* A group of contracts, whether with a single customer or with several customers, shall be treated as a single construction contract when:
(a) The group of contracts is negotiated as a single package;
(b) Thecontracts are so closely interrelated that they are, in effect, part of a single project with an overall profit margin; and
(c) The contracts are performed concurrently or in a continuous sequence.

* A 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 theadditional asset shall be treated as a separate construction contract when:
(a) The asset differs significantly in design, technology or function from the asset or assets covered by the original contract; or
(b) The price of the asset is negotiated without regard to the original contract price.

CONTRACT REVENUE

* Contract revenue shall comprise:
(a) The initial amount of revenue agreed in thecontract; and
(b) Variations in contract work, claims and incentive payments:
(i) To the extent that it is probable that they will result in revenue; and
(ii) They are capable of being reliably measured.

CONTRACT COSTS

* Contract costs shall comprise:
(a) Costs that relate directly to the specific contract;
(b) Costs that are attributable to contract activity in general and can beallocated to the contract; and
(c) Such other costs as are specifically chargeable to the customer under the terms of the contract.

RECOGNITION OF CONTRACT REVENUE AND EXPENSES

* When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract shall be recognised as revenue and expenses respectively byreference to the stage of completion of the contract activity at the end of the reporting period. An expected loss on the construction contract shall be recognised as an expense immediately in accordance 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 satisfied:
(a) Total...