This website uses cookies to ensure you have the best experience. Learn more

Revenue Recognition Of Construction Industry Essay

1817 words - 7 pages

Introduction
Revenue recognition for construction industry is a complex area, now IASB and FASB are trying to work out a comprehensive new accounting standard for revenue recognition. Before they issue the new standard, which is best interest for our client to know current standard and development issues for revenue recognition. This article will introduce how the revenue recognised at present within the construction industry at first. Second the process of new standard development will be discussed. In third part of this article will demonstrate reason why it is difficult and time consuming to developing the new standard. In the end, it will consider the lasted exposure draft published by IFRS and past reversions to make a future perspective about some benefits new standard will bring to construction contract.

Current revenue recognition within construction industry
If the construction contract result can be estimated reliably, then at the end of each reporting period revenue related should be recognised according to completion level of the contract and if the outcome cannot be judge reliably, which revenue would be recognised only cover the contract cost(IFRS, 2012). The definition of construction contract is ‘a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use’ (IFRS, IAS11 construction contract, 2012).
IAS 18 is the tandard for revenue recognition, which involved the contract of service (Mckeith and Collins, 2013). But it is difficult apply in certain industries like construction. Because the construction contract will take many years to be finished such as build assets (Elliott and Elliott, 2013). “The scope of IAS 2 also excludes working in process arising under construction contract”. If IAS 2 applied in construct contract, which means all the revenue will be recognised at the end of the contract and it may cause no profit in the financial report for years and suddenly a large number of revenue be recognised in the final year (Melville, 2011:167). So it is so necessary to introduce IAS 11for construction industry.
There are two circumstances, one is the outcome of contract can be reliable measured. That is to say the company should reliable measure the total contract revenue and the probable future cash flow of the economic benefit, the cost incurred and stage of complication (Mckeith and Collins, 2013). But IFRS does not issue how to measure the proportion of completion. So normally they will determined by three ways. First is determined by the cost incurred during that period compare with the total cost of the contract. Second is doing a survey about how the working has done by the date. Third is physical percentage complete of the whole work (Melville, 2011) .Another circumstance is that the outcome of the contract cannot be reliable estimate, ‘IAS 11 does not...

Find Another Essay On Revenue Recognition of Construction Industry

Vitamix Revenue Recognition Essay

1071 words - 4 pages Vitamix Revenue Recognition – “Special Cases” Proper revenue recognition is important in because it has a direct impact on quarterly income statements, incentive calculations, investor confidence, and perception of an organizations financial health. The scandals at Enron and WorldCom illustrate how important properly recognize revenue is to the financial integrity of a company and how abuse can be extremely dangerous. (Labaton, 2006) To

New Stadium Essay

1405 words - 6 pages impact of building a new stadium will be substantial. A new stadium would include dining, shopping, and lodging, increase revenue to the city, tourism and creates jobs. When constructing a new stadium, new workers must be hired, to include by not limited it, waiters, ticket takers, and security officers. Construction of a new stadium also increases attendance at night clubs, bars, retail shopping, lodging expenses, and car rental. In the

construction

1019 words - 5 pages declining in production. (Allen, 2010) When we see an economic downturn many of the different industries are affected in different ways depending upon their demand. The industry which always seems to be affected first and the last to recover is the construction industry. The construction industry is one of the largest sectors of the UK’s economy. It contributes around £90billion which is 6.7% of the total and 2.9 million people are employed within

Supply and Demand article

652 words - 3 pages , and the forecast looks good for growth in revenue for hotels over the next years. Why wouldn't a developer want to build more hotels to keep up with this growing demand? As mentioned above the costs of building a new hotel are high, the article points out that it is much more cost effective to buy an existing hotel than undertake a new construction. The rising costs of development do not justify new construction to investors in the hotel industry

Proposed Accounting Standards Changes and Their Effects on

892 words - 4 pages Discussion of the Changes Proposed by the International Accounting Standards Board and How These Changes Will Affect the United States’ General Accepted Accounting Practices The changes that are proposed by the International Accounting Standards Board (IASB) will affect the United States’ Generally Accepted Accounting Principles (GAAP). These changes may have the most significant effects in the areas of revenue recognition, leases, and financial

Netflix Strategy

621 words - 2 pages and view movies by setting a long term goal to acquire 5 million subscribers in the US in the next 4 to 7 years (Thompson et al, C-77). Netflix has been doing extremely well in regards to their online subscriber base, acquiring over 2 million in just 4 years (Thompson et al, C-64). The fact that they were pioneers of the online DVD rental industry helped develop a strong lead of customers, revenue, and brand recognition. Financially, their

"Airbus flight shows off troubled A380" - Issue Analysis

939 words - 4 pages when performance consists of the execution of more than one act, and revenue would be recognized proportionately by reference to the performance of each act…-There is not sufficient information in this case shows whether the customers are billed at different stages. However, based on industry practice of the aircraft manufacture, it is reasonable for EADS to bill the purchase at intervals, as recognition of various points of the production are

3M Mining Project Proposal

1351 words - 5 pages continue into the foreseeable future. The total economic impact examined in this report is the impact of the mine construction (capital expenses) and one year of operating costs and employee compensation. The results of the IMPLAN input-output model indicate that total county business revenues would increase by $57.7 million, with nearly $23 million of that added revenue generated in the construction sector. Labor income (the sum of employee

The Details behind the Construction Industry

2602 words - 11 pages wealthy industry to be a part of. The Construction Industry, in 2012, raised a revenue of $1.731 trillion dollars("Construction Industry Statistics"). There are 729,345 different construction companies in the US alone. Which employ 7,316,240 employees, who earn an average of $45,000 salary. There are different types of construction companies that specialize in different types of buildings. For ordinary housing construction there are 211,956

Expanding Deere's Construction Segement to China

1558 words - 7 pages employees have experienced occupational injuries or illnesses that caused absent days from work. The Cylinder Division designs and produces hydraulic cylinders for products in the Agriculture and Turf and Construction & Forestry Divisions and OEM markets. In 2007, Lord Corp. the leader in the management of vibration, motion and noise has earned recognition as a top supplier from John Deere. Suppliers who participate in the Achieving Excellence program

Choosing a Career Path

1383 words - 6 pages experience those organizations are committed to enhancing women-owned and minority-owned businesses ” (2014, April 1). Personal interview with Michael Sloan. Sundra encourages high school and college students to look into getting internships with the larger construction companies that offer internship programs. Another black women in the construction industry is Marjorie Perry. Marjorie Perry is the president and CEO of MZM Construction and

Similar Essays

Usage Of Information Technology For The Construction Industry

2030 words - 9 pages Obisesan Abiodun Course: Construction IT Application Topic: Usage of IT for Construction Industry Civil Engineering Metropolia University of Applied Sciences Helsinki Finland April 2014 Introduction Construction information technology (IT) applications are the applied use of information technology during the planning, design and implementation of projects or work during construction projects. It could also involve the use of

My Essay Gives A Description Of The Cost Principle, Revenue Recognition Principle, Matching Principle And All Of There Differences, All The Work Is Cited And Refrenced

1235 words - 5 pages scenario where the Revenue Recognition Principle could be applied is in the building of the Confederation Bridge linking New Brunswick to Prince Edward Island. The Confederation Bridge was built between 1992 and 1997. The construction began in 1992, therefore expenses were incurred in 1992. The bridge opened in 1997 and began earning revenue in order to match the expenses. It took five years before the expenses could start to be matched with

Ifrs Essay

1201 words - 5 pages challenge in the areas of accounting for employee benefits and share based payments. This sector is likely to have low to medium impact. The study highlights that revenue recognition, lease accounting, impairment of assets, consolidation, joint venture, sales tax deferral loan, intangibles and borrowing costs as the major impact areas for automobile industry. Telecom industry may have problems in revenue recognition, PPE, financial instruments and

Why You Should Buy This 10 Bagger’s Dip

1241 words - 5 pages TransCanada for over C$61.0 million during Q4 2013. Its late-stage solar project and EPC pipeline in the country, including those in construction, now stood at 477 MW. “This represents an estimated revenue opportunity of over $1.7 billion,” according to CEO Shawn Qu, for 2014 and 2015. In the United States, the company’s project pipeline totaled to 164 MW at the quarter-end, while it completed construction of three solar power plants totaling