03 July 2013
I am not clear regarding the revenue recognition with respect to construction contracts, especially the case where expected costs exceeds expected revenue! I have come to known that such a situation demands the expected loss to be treated as an expense. But I have come across a situation where, % of completion is applied on such expected loss, and is stated that such portion is to be recognized in the P&L.. and the balance shall be provided for as provision-- Isn't this according to CONSTRUCTION CONTRACTS?? I have searched for illustrations on similar cases, but I couldn't figure out any!
Kindly clarify my concept, Regards, Hari krishnan.
04 July 2013
See the International Accounting Standard 11
Whatever the method to recognize the revenue is used, in case of expected loss you have to account for all in the P&L account in the year when the expected loss is measured reliably.
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