Accounting for Construction Contracts IAS 11 has been subsumed under the standard IFRS 15, Revenues from Contract with customers. This has implications for the treatment of construction contracts including how they are accounted for, presented and disclosed.

Discuss making reference to the provisions of IFRS 15 Revenue from Contracts with Customers issued May 2014 and applicable for annual reporting beginning on or after January 1, 2018.

(Nb. The case information below is to be used to illustrate your understanding of the issues involved.)

Belvisja Limited has a fixed price contract for $9,000,000 to build a road, that is the initial amount agreed in the contract is $9 M. The contractor estimates that contract cost is $8,000,000. It will take three years to build the road.

By the end of year 1 the contractors estimate of contractors cost has increased to $8,050,000.

In year 2 the customer approves a variation resulting in an increase in contract revenue of $200,000 and estimated contract costs of $150,000.

At the end of year 2 costs incurred includes $100,000 for standard material storage on site to be used in year 3 to complete the project.

At the beginning of year 3 the customer requested that the contract be adjusted by $500,000 for the cleaning of the drains.

The contractor determines the stage of completion of the contract by calculating the proportion that contract cost incurred for work performed to date bear to the latest estimated total contract costs.