Podcast
Questions and Answers
Which costs are considered reimbursable under the contract?
Which costs are considered reimbursable under the contract?
What criteria must be met for efforts to be recognized as assets?
What criteria must be met for efforts to be recognized as assets?
What is the implication of a seller creating an asset with no alternative use?
What is the implication of a seller creating an asset with no alternative use?
What does the Recovery/Zero Profit Method imply about revenue recognition?
What does the Recovery/Zero Profit Method imply about revenue recognition?
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Which account is specifically used in long-term construction contracts?
Which account is specifically used in long-term construction contracts?
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What method can be used for revenue recognition in long-term construction contracts?
What method can be used for revenue recognition in long-term construction contracts?
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Which of the following is an example of incremental costs related to obtaining a contract?
Which of the following is an example of incremental costs related to obtaining a contract?
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Which of the following represents an output method in contracts?
Which of the following represents an output method in contracts?
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What should be done with supplies that are not yet used but can provide alternative value?
What should be done with supplies that are not yet used but can provide alternative value?
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Which method of revenue recognition allows for recognizing revenue based on efforts expended?
Which method of revenue recognition allows for recognizing revenue based on efforts expended?
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When is an effort recognized as recoverable?
When is an effort recognized as recoverable?
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Which expense is typically not reimbursable under long-term construction contracts?
Which expense is typically not reimbursable under long-term construction contracts?
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In which situation would it be appropriate to use the Recovery/Zero Profit Method?
In which situation would it be appropriate to use the Recovery/Zero Profit Method?
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What is a characteristic of costs that fulfill a contract?
What is a characteristic of costs that fulfill a contract?
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In the input method for revenue recognition, which of the following is accepted?
In the input method for revenue recognition, which of the following is accepted?
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Which account would not typically be used in accounting for long-term construction contracts?
Which account would not typically be used in accounting for long-term construction contracts?
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What is the primary purpose of a long-term construction contract?
What is the primary purpose of a long-term construction contract?
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Which of the following is NOT a type of construction contract mentioned?
Which of the following is NOT a type of construction contract mentioned?
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What costs are included in the design and technical assistance for construction contracts?
What costs are included in the design and technical assistance for construction contracts?
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What is a characteristic feature of fixed price contracts?
What is a characteristic feature of fixed price contracts?
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Which of the following statements about escalation clauses is correct?
Which of the following statements about escalation clauses is correct?
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When is revenue recognized at a point in time?
When is revenue recognized at a point in time?
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What criterion allows for revenue to be recognized over time?
What criterion allows for revenue to be recognized over time?
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Which of the following is NOT considered a general cost attributable to a contract?
Which of the following is NOT considered a general cost attributable to a contract?
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What can lead to penalties affecting contract revenues?
What can lead to penalties affecting contract revenues?
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Which of the following costs is chargeable to the customer under contract terms?
Which of the following costs is chargeable to the customer under contract terms?
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What is the amount recorded under Construction in Progress when assuming the total costs incurred is $500?
What is the amount recorded under Construction in Progress when assuming the total costs incurred is $500?
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Which account is credited when costs are incurred in a construction project?
Which account is credited when costs are incurred in a construction project?
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What amount is recognized as gross profit in the Construction in Progress account when total revenue is $700?
What amount is recognized as gross profit in the Construction in Progress account when total revenue is $700?
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What is the total amount of Accounts Receivable recorded for progress billings amounting to $650?
What is the total amount of Accounts Receivable recorded for progress billings amounting to $650?
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When progress billings exceed Construction in Progress, what section of the Balance Sheet does this appear in?
When progress billings exceed Construction in Progress, what section of the Balance Sheet does this appear in?
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If the progress billings amount is $760, what is the total Contract Liability on the Balance Sheet?
If the progress billings amount is $760, what is the total Contract Liability on the Balance Sheet?
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What is the net amount recognized as Contract Asset when Construction in Progress is $700 and Progress Billings is $650?
What is the net amount recognized as Contract Asset when Construction in Progress is $700 and Progress Billings is $650?
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What does the amount of $200 under Construction in Progress denote?
What does the amount of $200 under Construction in Progress denote?
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In which account is the revenue from construction recorded when the total is $700?
In which account is the revenue from construction recorded when the total is $700?
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What would the total amounts to be deducted from Current Assets when calculating net Contract Asset?
What would the total amounts to be deducted from Current Assets when calculating net Contract Asset?
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Study Notes
Contract Costs
- Contracts to create assets without alternative use are reimbursable under specific conditions.
- Site labor costs and material usage in construction are key components of contract costs.
- Depreciation applies to idle equipment and any plant or equipment not tied to a specific contract.
- Costs incurred for moving equipment and materials to and from job sites are also included.
Long-Term Construction Contracts (LTCC)
- Incremental costs should be capitalized when obtaining contracts unless they are expensed.
- Costs directly related to fulfilling a contract may be recognized as assets if certain conditions are met.
- Criteria for asset recognition include being directly related to the contract, enhancing the asset, and being recoverable.
Recognition Methods
- Revenue from LTCC can be recognized using either input or output methods, depending on the contract specifics.
- Input methods include cost-to-cost and efforts expended (evaluating labor hours and materials used).
- Output methods are based on direct measurements of value transferred, such as milestones or units produced.
- Recognizing revenue at the point in time may apply when reliable outcome estimation of the contract isn't possible.
Journal Entries in LTCC
- Key accounts used in journal entries include Construction in Progress (CIP), Progress Billings, and Contract Account.
- Typical entries include recording incurred costs, recognizing gross profit in the CIP account, and billing customers for progress.
Types of Construction Contracts
- Fixed-price contracts provide a set price per output and include potential escalation clauses for cost increases.
- Cost-plus contracts allow for fees in addition to direct costs (both variable and fixed).
- Design and technical assistance costs associated with contracts may involve rectification estimates and warranty costs.
Contract Revenues
- Contract revenues include the total consideration receivable and adjustments for variations and cost escalations.
- Revenue recognition occurs over time if specific criteria are met, such as customer consumption of benefits and control over assets being created.
- General overhead and administrative costs may be chargeable under contract terms if reimbursable.
General Costs and Considerations
- Costs related to insurance and other general administration may need to be clarified in contract terms to determine reimbursement.
- Research and development costs can be included if specifically reimbursable under the contract provisions.
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Description
This quiz covers essential concepts related to construction contracts, focusing on reimbursable costs, site labor expenses, and asset creation without alternative use. Test your understanding of the components that influence project costing and financial management in construction.
