ASC

ASC 310-912

Contractors—Federal Government

310 Receivables

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In brief

IntermediateRecognitionPresentationDisclosureIndustry-specific

This Subtopic tells federal government contractors how to recognize, present, and disclose receivables arising from government contracts. Its core rules: unbilled costs and fees under cost-plus-fixed-fee contracts are receivables or contract assets (not advances or inventory); progress payments are applied first against unbilled receivables (or accounted for as financing if the government obtains only a secured interest); and a terminated contract converts contract inventory into a termination claim receivable classified as a current asset.

Key points (7)
  • Unbilled costs and fees under cost-plus-fixed-fee contracts are receivables or contract assets rather than advances or inventory, because the right to bill generally exists upon expenditure or accrual and the delay is only to assemble billing data (310-912-25-1; 310-912-25-3).
  • Fee payments are usually measured by the ratio of expenditures incurred to total estimated expenditures rather than by a measure of progress toward satisfying a performance obligation under 606-10-25-31 through 25-37 and 606-10-55-16 through 55-21 (310-912-25-2).
  • If legal title to accumulated costs of contracts in progress vests with the U.S. government upon receipt of progress payments, those payments on fixed-price contracts are applied by individual contract first to unbilled receivables with any remainder to accumulated costs of contracts in progress; if the government receives only a secured interest, the progress payments are accounted for as a financing transaction (310-912-25-7).
  • Disposal credits (amounts for termination inventory retained by the contractor at agreed value, or sold to others with government approval) are applied as a reduction of the termination claim receivable; items retained without claim for loss are excluded from the claim (310-912-25-4; 310-912-35-1).
  • In no-cost settlements there is no sale to the government and no profit is accrued on termination; costs and retained property receive their usual accounting treatment (310-912-25-5).
  • Government contract receivables are shown separately from other receivables, billed items are presented separately from unbilled costs, and termination claims are recorded in one account, presented separately, with claims against the government segregated from claims against other contractors (310-912-45-1; 45-2; 45-6).
  • A termination claim is classified as a current asset unless there is indication of extended delay such as serious disagreement pointing to probable litigation; partial and advance payments are recorded as reductions of the claim receivable, and progress and advance payments are reported gross in operating cash flows (310-912-45-3; 45-5; 45-7; 45-4; 45-11).

For students. Exam traps here are classification, not measurement: unbilled costs are receivables/contract assets (never inventory or negative advances), and progress payments are netted against unbilled receivables on the balance sheet but must still be reported gross in the operating section of the cash flow statement. Also remember the title-versus-secured-interest test determines whether progress payments are an offset or a financing transaction.

unbilled costs and feescost-plus-fixed-fee contractprogress paymentstermination claim receivabledisposal creditsno-cost settlementcontract assetgovernment contract receivables

Machine-generated study aid for ASC 310-912. Check the source paragraphs below.

310-912-00Status

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310-912-05Overview and Background

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310-912-05-1
This Subtopic provides guidance to government contractors related to the recognition, presentation, and disclosure of receivables resulting from federal government contracts.

310-912-15Scope and Scope Exceptions

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Overall Guidance

310-912-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 912-10-15.

310-912-25Recognition

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Cost-Plus-Fixed-Fee Contracts

310-912-25-1
Unbilled costs and fees under cost-plus-fixed-fee contracts are receivables or contract assets rather than advances or inventory.
310-912-25-2
Payments on account of the fees (minus amounts withheld until completion) are made from time to time as specified in the agreements, usually subject to the approval of the contracting officer. In most circumstances the amount of each payment is determined by the ratio of expenditures made to the total estimated expenditures rather than on the basis of deliveries or other measures of progress toward complete satisfaction of a performance obligation in accordance with the guidance in paragraphs
606-10-25-31 through 25-37
and paragraphs
606-10-55-16 through 55-21
.
310-912-25-3
The principal reason for the existence of unbilled costs is the time usually required, after receipt of material or expenditures for labor and other costs , to assemble data for billing. The right to bill usually exists upon expenditure or accrual, and that right represents a receivable rather than an advance or inventory.

Termination Claims

310-912-25-4
Disposal credits are amounts deducted from the contractor's termination claim receivable by reason of the contractor's retention, or sale to outsiders, of some or all of the termination inventory for which claim was made. In the circumstance of items retained, either as scrap or for use by the contractor, the amount of the credit shall be determined by agreement between the contractor and a representative of the government. The sale of inventory items by the contractor shall be likewise subject to approval by the government, except as permitted by regulation. Because the amount of the contractor's termination claim is properly recorded as a sale, any elements included in that claim for items of inventory retained by the contractor are, in effect, reacquired by the contractor and shall be treated as purchases at the agreed value. Amounts received for items sold to others with the approval of the government are collections for the account of the government and shall be applied as a reduction of the termination claim receivable. Inventories or other items that are retained by the contractor after termination without claim for loss shall not be included as an element of the termination claim.
310-912-25-5
A contractor whose contract is terminated may prefer to retain the termination inventory for use in other production or for disposal at the contractor's risk. For these or other reasons the contractor may prefer to make no claim against the government or a higher-tier contractor. In such no-cost settlements there is no sale of inventory or other items to the government and no occasion to accrue any profit arising from the termination. The costs otherwise applicable to the contract shall be given their usual treatment in the accounts. Items of inventory or other property retained, having been previously recorded, require no charge to purchases but shall be treated in accordance with the usual procedures applicable to such assets.

Progress Payments

310-912-25-7
The accounting for progress payments under a government contract depends on the progress-payments clause as follows:
  1. a
    If legal title to the related accumulated costs of contracts in progress vests with the U.S. government on the contractor's receipt of progress payments, progress payments received on fixed-price contracts shall be applied by individual contract first to amounts carried in unbilled receivables, with any remainder applied to accumulated costs of contracts in progress (often referred to as inventories).
  2. b
    If a legal determination is made that the U.S. government receives only a secured interest in the accumulated costs of contracts in progress, progress payments received shall be accounted for as a financing transaction.

310-912-35Subsequent Measurement

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Inventory Items Related to Termination Claims

310-912-35-1
A purchase of inventory items recognized in accordance with the guidance in paragraph 912-330-25-1 shall be applied, together with other disposal credits, against the termination claim receivable.

310-912-45Other Presentation Matters

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Balance Sheet

310-912-45-1
Government contract receivables usually are shown separately from other receivables in the balance sheet (or otherwise disclosed in the notes to financial statements).
310-912-45-2
There is a difference in character between billed items and unbilled costs and such amounts shall be presented separately on the balance sheet.
310-912-45-3
Termination claims shall be classified as a current asset.
310-912-45-4
Advance payments received before termination may be shown in financial statements after termination as a deduction from the claim receivable.
310-912-45-5
Termination has the effect of converting an active contract in process into a claim, or, from an accounting standpoint, from contract inventories and other charges into an account receivable. This receivable arises in the regular course of business; it is part of the working capital; and in view of the provisions made for financial assistance to the contractor during the period of termination, collection in large part may be expected within a relatively short time. The termination claim shall therefore be classified as a current asset, unless there is an indication of extended delay, such as serious disagreement pointing to probable litigation, which would exclude it from this classification.
310-912-45-6
Although a claim may be composed of several elements representing reimbursable items of special equipment, deferred charges, inventories, and other items, as well as claims for profit, it is preferable to record the claim in one account. The total of termination claims shall be presented separately from other receivables. Claims directly against the government shall be segregated from claims against other contractors.
310-912-45-7
To assure adequate financial assistance to contractors, legislation and regulations provide in some circumstances for partial payments and in others for such payments or guaranteed loans from the effective date of termination until final settlement. Partial payments shall be recorded as reductions of the termination claim receivable.
310-912-45-8
The costs and expenses chargeable to the termination claim are given their usual classification in the accounts.

Cash Flow Statement

310-912-45-11
In reporting cash flows from operating activities, progress, and advance payments received on contracts shall be reported gross, regardless of whether those payments have been applied against unbilled contract receivables or accumulated costs of contracts in progress in the balance sheet. The manner of reporting depends on whether the entity uses the direct method or indirect method as follows:
  1. a
    Direct method. Entities that use the direct method in reporting cash flows from operating activities shall show progress and advance payments received on contracts as a separate major class of cash receipts.
  2. b
    Indirect method. Entities that use the indirect method shall show progress and advance payments as a separate adjustment in reconciling net income to net cash provided for operating activities.

310-912-50Disclosure

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Termination Claims

310-912-50-1
For those parts of the termination claim that are included in financial statements after termination, full disclosure of the essential facts shall be made.
310-912-50-2
The termination claim shall be separately disclosed.

Progress Payments

310-912-50-3
The amount of progress payments offset against unbilled receivables shall be disclosed.

Advance Payments

310-912-50-4
Advance payments received on the contract before its termination shown as a deduction from the claim receivable in accordance with paragraph 912-310-45-4 shall be explained in a note to financial statements.

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