Construction Contracts (IAS-11)--Under IFRS

CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. )   (9017 Points)

05 June 2009  

 

Construction Contracts (IAS-11)
A Construction contract is defined in IAS 11 as “ …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”
     There are two types of construction contract
§Fixed Price
§Cost plus contracts
      Although the standard notes that construction contracts are usually formulated as fixed price of cost plus contract, some contract have feature of both types.
     In such cases, the standard states that, in order to determined when to recognise contract revenue and expenses, the  contractor needs to consider all the conditions for both fixed price and cost plus contracts set out.
     Normally, the requirements of IAS 11 are applied separately to each construction contract.
     However, sometimes it is necessary to break a single contract down into separable elements and apply the standard to each of those elements separately. A single contract may cover the construction of a number of assets.