What are the main objectives of the IAS 11 Construction and Contract?

International Accounting Standard 11 Construction Contracts............

The objective of this Standard is to prescribe the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. This Standard uses the recognition criteria established in the Framework for the Preparation and Presentation of Financial Statements to determine when contract revenue and contract costs should be recognised as revenue and expenses in the statement of comprehensive income. It also provides practical guidance on the application of these criteria.

The main objective of AIS 11 is to provide guidance on the allocation of Contract revenue and contract costs, ensuring that revenue and costs are recognised  in periods in which contract work is done.

The main objective of IAS is revenue recognition according to completion contract of construction . 

The proposed treatment of a construction contract by IAS balances the requirement to present financial statements under Accruals Basis, and the conventional wisdom of the Prudence Concept. Where a net inflow of economic benefits under a construction contract is probable, costs and revenue are recognized to the extent of completion of the contract (i.e. Accruals Basis). If however a loss is expected under the contract, the entire loss is immediately recognized (i.e. Prudence Concept).

The goal of the international construction standard No. 11 is; unify the accounting treatment appropriate for the revenues and costs of construction contracts, and how to distribute the revenues and costs of the contract years, which has been doing business in which, due to the nature of the construction works of the occurrence of revenues and costs of construction in fiscal years different

0 comments

1

Request the deletion

Thank you for your kindness invitation.

I agree with all previous answers.

Regards

IAS - 11 describes about allocation of Revenue & costs of a construction contract in a specific accounting period. 

A construction contract is a contract specifically negotiated for the construction of an asset or a group of interrelated assets. [IAS 11.3]

Under IAS 11, if a contract covers two or more assets, the construction of each asset should be accounted for separately if (a) separate proposals were submitted for each asset, (b) portions of the contract relating to each asset were negotiated separately, and (c) costs and revenues of each asset can be measured. Otherwise, the contract should be accounted for in its entirety.

The main objective is to process the long term contracts and its revenues and costs

- IT provides us requirements on   the  allocation of contract revenue and contractors to accounting periods in which construction work is performed.

-Contract revenues and expenses are recognized  by reference to the stage of  completion of contract activity  where the outcome oft he construction contract can be estimated reliably, otherwise revenue is recognized  only to the extent of recoverable contract costs incurred.

-Note that  I AS11 was reissued  and is applicable for perio ds beginning on  or after  1/1/1995