ASC

ASC 405-912

Contractors—Federal Government

405 Liabilities

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In brief

IntermediatePresentationDisclosureCash flowsIndustry-specific

ASC 405-912 tells federal government contractors how to present and disclose liabilities arising from terminated contracts and from progress/advance payments. Termination loans (even if government-guaranteed) are third-party liabilities shown as current liabilities with cross-reference to the related claim; unliquidated advance payments on a terminated contract are deducted from the claim receivable. Progress and advance payments accounted for as borrowings under 912-310-25-7 are reported as cash received from financing activities.

Key points (7)
  • The Subtopic addresses liabilities from subcontractors' claims on cost-plus-fixed-fee contracts and from progress payments (405-912-05-1), and follows the scope of Subtopic 912-10 (405-912-15-1).
  • Whether progress payments received are accounted for as a financing transaction is determined under paragraph 912-310-25-7 (405-912-25-3).
  • Loans negotiated on the security of a termination claim are presented as current liabilities (405-912-45-3).
  • Termination loans are liabilities to third parties even when guaranteed in whole or in part by the government, and are presented as balance sheet liabilities cross-referenced to the related claim (405-912-45-4).
  • Advance payments previously received on a terminated contract are reflected as deductions from the claim receivable in statements issued before final collection (405-912-45-5).
  • Progress and advance payments accounted for as borrowings are reported as cash received from financing activities (405-912-45-7).
  • Disclosure is required of the relationship of advance payment or guaranteed loan liabilities to a possible termination claim receivable (405-912-50-2) and of subcontractors' claims whose amounts are not reasonably determinable (405-912-50-3).

For students. Most of the old recognition and classification guidance here was superseded by ASU 2014-09 (ASC 606), so what remains is essentially balance sheet presentation, cash flow classification, and disclosure. The common trap is assuming a government guarantee makes a termination loan something other than a liability, or netting the loan against the claim receivable — only prior advance payments are deducted from the claim.

termination claimtermination loansadvance paymentsprogress payments as financingcost-plus-fixed-fee contractsubcontractors' claimsgovernment contractorfinancing activities

Machine-generated study aid for ASC 405-912. Check the source paragraphs below.

405-912-00Status

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405-912-00-1
The following table identifies the changes made to this Subtopic.
Paragraph Action Accounting Standards Update Date
912-405-05-1 Amended Accounting Standards Update No. 2014-09 05/28/2014
912-405-25-1 Superseded Accounting Standards Update No. 2014-09 05/28/2014
912-405-25-2 Superseded Accounting Standards Update No. 2014-09 05/28/2014
912-405-45-1 Superseded Accounting Standards Update No. 2014-09 05/28/2014
912-405-45-2 Superseded Accounting Standards Update No. 2014-09 05/28/2014
912-405-45-6 Superseded Accounting Standards Update No. 2014-09 05/28/2014
912-405-50-1 Superseded Accounting Standards Update No. 2014-09 05/28/2014
912-405-50-2 Amended Maintenance Update 2016-11 (PDF) 06/27/2016
912-405-50-3 Amended Maintenance Update 2016-11 (PDF) 06/27/2016

405-912-05Overview and Background

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405-912-05-1
This Subtopic provides guidance to government contractors on accounting for liabilities associated with claims of subcontractors on cost-plus-fixed-fee contracts and progress payments.

405-912-15Scope and Scope Exceptions

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Overall Guidance

405-912-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 912-10-15.

405-912-25Recognition

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Progress Payments

405-912-25-3
Paragraph 912-310-25-7 provides guidance on the circumstances in which progress payments received shall be accounted for as a financing transaction.

405-912-45Other Presentation Matters

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Balance Sheet

405-912-45-3
Loans negotiated on the security of the termination claim shall be shown as current liabilities.
405-912-45-4
Termination loans are liabilities to third parties, even though guaranteed in whole or in part by the government, and shall be presented in the balance sheet as liabilities, with appropriate cross-reference to the related claim or claims.
405-912-45-5
If a terminated contract is one on which advance payments had previously been received, the financial statements of the contractor issued before final collection of the claim shall reflect any balance of those advances as deductions from the claim receivable.

Cash Flow Statement—Progress and Advance Payments

405-912-45-7
If progress and advance payments are accounted for as borrowings, such amounts shall be reported as cash received from financing activities.

405-912-50Disclosure

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Termination Claims

405-912-50-2
Financial statements issued before the termination claim is recorded shall disclose, by note or otherwise, the relationship of advance payment or guaranteed loan liabilities to a possible termination claim receivable.
405-912-50-3
To the extent that the amounts of subcontractors' claims are not reasonably determinable, disclosure shall be made by note or otherwise in the financial statements.

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