Page 203 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Construction contracts

Step (1) Determine if the overall contract is profitable

To calculate whether a contract is profitable, consider:

Contract price x

Less

Costs incurred to date (x)

Expected costs to complete (x)
––––
Overall contract profit/loss x/(x)
––––

Watch out for LOSS making contracts. The loss will need to be
recognised immediately. See step (3).

For contracts were progress is uncertain, revenue = recoverable
costs. Therefore, no profit can be recognised as per IAS 11
Construction contracts.

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