International Accounting Standard 11

from Wikipedia, the free encyclopedia

The International Accounting Standard 11 ( IAS 11 ) is an accounting regulation of the IASB on the accounting of income and expenses of construction contracts . These are orders that have customer-specific characteristics, such as the construction of a bridge or a factory. From 2018, IAS 11 will be replaced by the new standard IFRS 15 (Revenue from Contracts with Customers) .

Under certain conditions, IAS 11 requires the realization of profits according to the percentage of completion method ( POC method ). According to this method, the contract costs incurred according to the stage of completion are allocated to the contract revenue. This results in the consideration of income, expenses and result in accordance with the progress made. This method provides useful information on the status of contract work as well as performance over a period.

In contrast to this, according to the provisions of the (German and Austrian) Commercial Code (namely § 252 I 4 HGB for Germany), profits from such projects may only be reported if they have actually been realized, for example at., Due to the principle of prudence and the principles of proper accounting Transfer of beneficial ownership ( Completed Contract Method ).

IAS 11.03 distinguishes between the following contract types:

  • Fixed price contract ("fixed price"): a fixed price or a fixed price per output unit is agreed, whereby these can be linked to a price escalation clause
  • Cost surcharge contract ("cost plus"): an agreed percentage of these costs or a fixed fee is added to the billable or otherwise specified costs.

To use the Percentage of Completion Method, it must be possible to reliably estimate the result of a production order. According to IAS 11.23 this is the case as follows:

  • Fixed price contract:
    • The entire contract revenue can be reliably assessed;
    • it is likely that the economic benefit from the contract will accrue to the company;
    • Both the costs still incurred up to the completion of the order and the degree of completion can be reliably assessed on the balance sheet date;
    • the costs attributable to the contract can be clearly determined and reliably assessed so that the costs incurred so far can be compared with previous estimates.
  • Cost surcharge contract:
    • It is likely that the economic benefit from the contract will accrue to the company;
    • the contract costs attributable to the contract can be clearly determined and reliably assessed, regardless of whether they can be billed separately.

If the result of a production order cannot be reliably estimated, the revenue is only to be recorded in the amount of the order costs incurred that are likely to be recoverable, with simultaneous recording of the order costs incurred as an expense in the period. As in the HGB , this is equivalent to an assessment at production costs .

If it is likely that the total contract costs will exceed the total contract revenue, the expected losses must be recognized as an expense immediately.

The percentage of completion is calculated as follows:

example

  • Manufacturing period from January 1, 2005 to December 31, 2009.
  • The total production costs are 500,000 euros.
  • The total profit is estimated at 80,000 euros.
  • By December 31, 2005, costs of 100,000 euros had already been incurred, which corresponds to 20% of the total costs.
  • Now - equivalent to the costs - 20% of the profit is assigned to the year 2005, resulting in a profit of 16,000 euros in 2005.
  • It should be noted here that deferred taxes are taken into account (in this case a tax provision or deferred tax liability), as the IFRS and tax balance sheets differ by EUR 16 thousand. A tax provision of 16,000 x tax rate is therefore compulsory.

Web links

See also