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Topic 3: Construction - Coggle Diagram
Topic 3: Construction
1. Nature
Complex combination of resources :
People
Plant
Materials
Locations
Technology
Knowledge of law
Cover wide range of works
Design
Build and/or maintenance
Machine
Road
Etc
Parties involvement
Main contractor
Sub-contractor
Customers
Covers >1 years
(started date & completed/end date fall into different accounting period)
2. Regulations and standards
MFRS15 Revenue from Customer with Contract,
(1/1/2018)
An entity should
recognise revenue
which depict the
transfer of promised good / services
to customers in an amount that reflects the considerations to which the entity
expects to be entitled in exchange
for those gòod and services - followed contractor's accounting period.
3. Recognition and measurement
5-step model
Step 3:
Determine transaction price
Meaning
: The transaction price (or contract revenue) is the consideration the contractor
expects to be entitled
to in exchange for satisfying its performance obligations.
Variable amount
Change orders / variations
(possible increase / decrease)
Customer-funished materials
Penalties
(possible increase to revenue)
Claims and liquidated damages
(possible decrease to revenue / payments to customer)
The accounting for
awards /. incentive payments
(possible increases to revenue)
Both
Fixed amount
Step 4:
allocate transaction price
if >1 performance obligations
:
allocated to each performance
based on the
relative standalone selling prices
of the goods and services being provided to the customer.
Best dividend of a
standalone S/P
observable price of a good / services when sold separately.
If the actual S/P is
not
directly observable = standalone s/p should be estimated using a
reasonable method
cost-plus-margin approach
residual approach
Step 2:
identify performance obligation
Distinct
Comprised of a series of distinct goods or services
Step 5:
recognize revenue
When?
= upon the
satisfaction
of performance obligations (occurs when control of good/services
transfer
to the customer)
Construction: the control is usually
over time
(customer
receives and consumes the benefits
of the company's performance as the company perform)
the measurement of progress toward completion * = To
determine the timing of revenue recognition** using a method that best represents the transfer of the goods/services to the customer.
Input method
labor hours basis
Cost basis
Output method
milestione reached
unit produced
cost-to-cost / % of completion method
: common method used by construction company
Contract costs
(include: costs related to the inefficiencies (abnormal costs of material, labor and costs to fulfill))
B) attributable to contract activity
in general
and can be
allocated to the contract
costs of design and technical assistance that are not related directly related to a specific contract
construction overhead
insurance
borrowing costs
C) other costs (specifically chargeable to the customer under the terms of the contract
A) directly to the specific contract
costs of hiring plant and equipment
costs of design and technical assistance that is directly related to the contract
cost of moving plant, equipment and materials to and from the contract site
estimated costs of rectification and guarantee work (expected warranty costs)
depreciation of plant and equipment used on the contract
claims from third parties
site labour costs, include site supervision
excluded cost
= cost that cannot be attributed to contract activity or cannot be allocated to a contract)
selling costs
R&D (not specified in the contract)
General administration costs (not specified in the contract)
Depreciation of idle plant and equipment (not used in particular contract)
Step 1
: identify the contract
Contract definition:
An
agreement
between 2 or more parties that
creates enforceable rights and obligations
Criterias
(must fulfill all)
**
C) the entity can identify the payment terms for the goods or services to be transferred
D) The contract has commercial substance
B) the entity can identified each party's rights regarding the goods & services to be transferred
E) It is probable that the entity will collect the considerations in exchange for the goods or services to be transferred to the customer
A) the parties to the contract have approved the contract and are committed to perform their perspectives obligations
The
condition
to combine several contracts into a single contract
The contract are entered into near:
Same time
same customer
Fulfill
at least 1
condition
Negotiate with a single commercial objective
The amount of consideration is depend on the other contract
The goods and service promised are single performance obligations
Contract modifications