International Financial Reporting Standards_guide.pdf

266 Chapter 24 Construction Contracts (IAS 11)
24.4.2 Contract revenues comprise:
■ the initial agreed contract amount; and
■ variations, claims, and incentive payments to the extent that it is probable that these
will result in revenue and are capable of being reliably measured.
24.4.3 Contract costs comprise:
■ direct contract costs (for example materials, site labor, or depreciation of plant and
equipment used on the contract);
■ general contract costs (for example insurance, costs of design, or construction
overheads); and
■ costs specifically chargeable to the customer in terms of the contract (for example
administrative costs or selling costs).
Subsequent Measurement
24.4.4 When the outcome of a construction contract can be reliably estimated, contract revenue
and contract costs should be recognized as revenue and expenses respectively by reference
to the stage of completion of the contract activity at the end of the reporting period.
24.4.5 The stage of completion can be determined by reference to:
■ the portion of costs incurred in relation to estimated total costs;
■ surveys of work performed; and
■ the physical stage of completion.
24.4.6 In the case of a fixed-price contract, the outcome of a construction contract can be
estimated reliably when all the following conditions are met:
■ total contract revenue can be measured reliably;
■ it is probable that the economic benefits associated with the contract will flow to the
entity; and
■ the costs attributable to the contract can be clearly identified and measured reliably so
that actual contract costs incurred can be compared with prior estimates.
24.4.7 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:
■ 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.
24.4.8 When the outcome of a contract cannot be reliably estimated, revenue should be
recognized to the extent that recovery of contract costs is probable. The contract costs should
be recognized as an expense in the period in which they are incurred.
24.4.9 When the uncertainties that prevented the outcome of the contract being estimated
reliably no longer exist, revenue and expenses associated with the construction contract
should be recognized as in 24.4.8.
24.4.10 Any expected excess of total contract costs over total contract revenue (expected
loss) is recognized as an expense immediately.