Construction Contracts Accounting Guide
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ScribdTranslationsConstruction Contracts Accounting Guide
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Higher Institute of Communication and Image of Mozambique
Disciplina: Contabilidade Financeira - II
Theme: NCRF 10 - CONTRACTS OF
CONSTRUCTION
Student: Class: CAN2A
Isália Good Macambaco
Docentes: Dr. Abílio Muchanga
TOPICS
Objectives
Scope
Combination and segmentation of construction contracts
Contract yield
Contract cost
Recognition of expected losses
Disclosures
OBJECTIVE
It is the nature of the activity underlying the
construction contracts, the date on which the
activity is initiated and the date on which the
activity is completed usually
in different accounting periods.
SCOPE
For the purposes of this regulation, construction contracts
include:
Service provision contracts that are
directly related to the construction of a
active as ex: those related to designer services and
architects; and
Contracts for the demolition or restoration of assets and the
recovery of the environment after demolition of
assets.
COMBINATION AND SEGMENTATION OF CONTRACTS OF
CONSTRUCTION
When a contract covers several, the construction of each
asset should be treated as a construction contract
separated under the following conditions:
separate proposals have been submitted for each
active
Each asset has been subject to separate negotiation and the
contracting parties have been in a position to accept or
reject the part of the contract relating to each asset; and
The costs and revenues of each asset can be identified.
RENT OF CONTRACT
The income of the contract must include:
The initial amount of revenue negotiated in
contract; and
Changes to the initially contracted work,
reclamações e pagamento de incentivos, desde
that is likely to result in profit and
can be measured reliably.
COST OF THE CONTRACT
The contract costs must include:
Costs directly related to the
specific contract
Costs attributable to the activity in general and
that can be attributed to the contract; and
Other costs that are specifically
debitable to the client under the terms of the contract.
RECOGNITION OF EXPECTED LOSSES
When is it likely that the total costs of
contracts exceed the total yield of the contract, the
expected loss or damage must be
immediately recognized as an expense.
DISCLOSURES
An entity must disclose the following
for the contracts in progress at the date of the balance sheet:
The total amount of costs incurred and
profits recognized (minus losses
recognized) up to date;
The amount of advances received; and
The amount of withholdings.
EXERCISES
Exercise No. 1
A construction company secured a contract for the construction of a stretch of a highway with a
remuneration of 950,000 mt. The estimated total cost is 850,000 mt. In year N, the incurred costs amounted to
a 425,000mt. In year N+1, the costs incurred in the year amounted to 375,000mt and the costs to be incurred were
estimated at the end of the year at 250,000 mt. Make the applicable accounting entries.
Solution:
Year N:
The degree of finishing is calculated as follows:
Accumulated costs incurred = 425,000 = 50%
Estimated total cost 850,000
The credit to be recognized corresponds to the degree of completion multiplied by the total remuneration and deducted from the
income recognized in previous years and will be:
(50 %*950 000)- 0 =475 000
EXERCISES
The launch to be carried out will be:
[Link] – deferred earnings ………. 475,000
It is assumed that the issued invoicing is accounted for in account [Link] and that it exceeds the
amount of revenue to be recognized
• a 7.2 – provision of services ………….. 475,000
Year N+1:
The degree of finish is calculated as follows:
Accumulated costs incurred = 800,000 = 76.19%
Estimated total cost 1,050,000
(76,19% *950.000) – 475.0000 = 248.805
Cont……
The launch to be carried out will be:
• [Link] – deferred income ……248,805
The billing exceeded the amount of revenue
• 7.2 – service provisions ..........248,805
However, a loss of 100,000mt is now estimated on this contract. The results
it can be summarized as follows:
Yes Profit (loss)
recognized
N 50,000
N+1 (126.195)
Accumulated up to N+2 (76.195)
Continued...
The difference between the estimated total loss and the
loss already recognized must be recognized
through a provision. The launch to
to carry out will be:
• 6.6.7 provisions for the period .......... 23,805
• a 4.8.7 provisions 23,805
Obrigada
