Scope:

IFRS 15 Construction Accounting doesn’t apply to

• Lease Contracts
• Insurance Contracts
• Non-monetary exchanges b/w two entities
• Contracts fall within the scope of IFRS
Financial Instruments, IFRS 10 Consolidation,
IFRS11 Joints Arrangements, IAS 27 Separate
Financial Statements and IAS 28 Investment in
Associates
Steps in Revenue Recognition

1. Identify the contract with a customer

2. Identify separate performance obligation in a contract

3. Determine the transaction price

4. Allocate the transaction price to performance obligation

5. Recognise revenue when or as entity satisfies a performance obligation

Accounting Entries

To record costs incurred during the year

Debit Work in progress
Credit Cash / Account payable

To record Progress Billing

Debit Accounts Receivable
Credit Progress Billing (contract liability)

To record collection from customer

Debit Cash
Credit Accounts Receivable
Accounting Entries

To recognize contract revenue and costs

Debit Contract Costs
Debit Profit recognized (work in progress)
Credit Contract Revenue

To close the contract

Debit Progress Billing
Credit Work in progress
Construction Industry Terminologies

Progress Billing: Advance billing in accordance with contract terms, generally based upon
work performed to date
Performance Bond: Guarantee provided by the contractor for completion of work in
accordance with contract terms
Variation: change in the scope of contract requested by the customer.
Claim: A claim refers to an amount billed to the customer for reimbursement of costs not
included in the contract price.
Liquidated Damages: an LD clause is that a party in breach of its obligations under a contract
is obliged, by that contract, to pay a particular sum by way of compensation for that breach
Backlog: Revenue expected to be realized from un completed work and contract on hand
Retention Money: amount deducted from the bill as security. Retention money is returned
after certain period of time or at the end of the project.