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2015 Jun 5(a) Construction contract

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › 2015 Jun 5(a) Construction contract

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by MikeLittle.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • May 15, 2018 at 7:06 am #452021
    marthew
    Participant
    • Topics: 38
    • Replies: 6
    • ☆

    Hello Mike,

    According to IFRS 15, “cost incurred to fulfill a contract should be recognized as asset if the costs relate directly to a contract, enhance the resource of the entity that will be used in satisfying its performance obligation in the future and the costs are ecpected to be covered.

    contract asset is amortised on a systematic basis that is consistent with the pattern of the transfer of the good or service.

    Revenue should be recognized when the entity satisfies its performance obligation over time.”

    I am reading the answer for 2015 Jun 5(a), it mentions ” when the outcome of a construction contract can be estimated reliably, contract revenue and contract cost associated with the construction contract shall be recognized as revenue and expense respectively by reference to the stage of completion…”

    I understand that the above sentence is based on IAS 11, which is no longer applicable. However, my question is can I still use the same sentence when I apply IFRS 15?

    If not, how should I reword the sentence to?

    Thank you.

    Regards,
    Marthew

    May 15, 2018 at 7:42 am #452029
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23333
    • ☆☆☆☆☆

    The following is an extract from the article by Collins Barrow, a Canadian accountancy firm and member of the Baker Tilly group

    The link to the full article is:

    https://www.collinsbarrow.com/en/cbn/publications/revenue-recognition-for-construction-contracts-under-ifrs-15

    “IAS 11 sets out how to account for expected contract losses, but no guidance is contained in IFRS 15. Therefore, an entity will need to now look to the more general guidance on onerous contracts contained in IAS 37 Provisions, Contingent Liabilities and Contingent Assets. This may impact timing for when these losses on construction contracts are recognized and/or measured.

    In summary, accounting for revenue arising from a construction contract may result in accounting for revenue in a similar manner to current practice, through the stage of completion approach.

    However, a detailed read of the standard may raise questions on how the new recognition and measurement steps are to be applied to a contract.

    A thorough analysis of the nature of the contract entered into by the entity is critical on initial adoption, in order to establish IFRS 15 compliant accounting policies.

    Entities that are required to follow IFRS will need to document how they have complied with the requirements set out in IFRS 15 starting Q1 2018”

    Does that help?

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  • The topic ‘2015 Jun 5(a) Construction contract’ is closed to new replies.

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