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SFAS No.
11
Construction Contracts
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 Status |
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Revised by the
Financial Accounting Standards Committee In Taiwan on 20 Jujy 1987 |
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Summary |
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The purpose of this Standard is to
establish accounting standards for long-term |
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construction contracts. This Standard
also applies to long-term service contracts |
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directly related to long-term
construction. |
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Long-term construction contracts
referred in this Statement are defined as the |
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construction events, extending over a
period of more than one year, such as |
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construction contracts of buildings,
bridges, dams, ships and dredging of waterways. |
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Construction costs should include the
following costs incurred for long-term construction
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contracts: |
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(a)costs directly associated with the contract such as direct
materials, direct
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labor, and costs of contracts incidental to the main contract; and |
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(b)costs both indirectly associated with and allocable to the
contract (e.g.,
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indirect labor, insurance, and indirect construction expenses). |
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Methods
to measure the percentage of completion |
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(a)Construction-cost-percentage method: the degree of completion is
measured
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by the ratio of costs already incurred to the estimate of the total
costs to |
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complete the project. |
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(b)Construction-time-percentage method: the degree of completion is
measured |
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by the ratio of hours worked (or labor dollars) to date to the total
estimated
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hours (or total labor dollars) to complete the project. |
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(c)Units-of-work-performed method: this method uses the ratio of the
output
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achieved to date to the total expected output of the contract. For
example, |
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the completed mileage is used to measure the percentage of
completion of a |
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road construction project. |
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Choice
of accounting method and recognition of construction income |
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The percentage-of-completion method is
required when estimates of construction profits |
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are reasonably dependable. |
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(a)Under the completed-contract method, construction profit is
recognized only |
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when the contract is completed or substantially completed except for
some |
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miscellaneousjobs. |
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(b)Under the percentage-of-completion method, contract profit for
the current |
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period is the difference between the cumulative profit based on the
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percentage of completion at the end of the current period and the
cumulative |
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profit recognized in prior periods. However, if the cumulative
profit recognized |
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in prior periods is greater than the cumulative profit calculated
based on the |
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percentage of completion at the end of the current period, the
excess should |
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be recorded as a loss in the current period. |
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(c)If a contract is estimated to bear a loss prior to completion,
the full amount of |
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the loss should be recognized immediately whether the
completed-contract or |
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percentage-of-completion method is adopted. However, if the loss is
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estimated to be smaller in future years, the difference should be
reversed and |
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recognized as a gain in that year. |
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(d)Damages or fines arising from delays or other causes should be
accrued in full |
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in that year. |
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(e)When there are changes in construction contract prices or
estimates of total |
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construction costs, such changes should be treated as changes in
accounting |
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estimates. |
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This Statement also specifies
disclosures about long-term construction contracts. |
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Effective
date
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This Statement becomes effective for
the fiscal year ending on and after December 31, 1987. |
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