The following table identifies the changes made to this Subtopic.
The Contractors—Construction Topic provides incremental industry-specific guidance on the application of generally accepted accounting principles (GAAP) in accounting for the performance of contracts for which specifications are provided by the customer for the construction of facilities or the production of goods or for the provision of related services.
The objective of this Topic and the related Subtopics is to present incremental accounting principles specifically related to construction contractors.
The Subtopics within the Contractors—Construction Topic only provide incremental industry-specific guidance for the entities defined in this Scope Section, or as further defined in the Scope Sections of the individual Subtopics. Entities within the scope of this Topic shall also comply with the applicable standards not included in this Topic.
The Contractor Accounting—Construction Contractors Topic provides guidance for entities that perform construction-type contracts.
Although the construction industry is difficult to define because of its diversity, certain characteristics are common to entities in the industry. The most basic characteristic is that work is performed under contractual arrangements with customers. A contractor, regardless of the type of construction activity or the type of contractor, typically enters into an agreement with a customer to build or to make improvements on a tangible property to the customer's specification. The contract with the customer specifies the work to be performed, specifies the basis of determining the amount and terms of payment of the contract price, and generally requires total performance before the contractor's obligation is discharged. Unlike the work of many manufacturers, the construction activities of a contractor are usually performed at job sites owned by customers rather than at a central place of business, and each contract usually involves the production of a unique property rather than repetitive production of identical products.
The portion of retainages not collectible within one year, or within the operating cycle if it is longer than one year, shall be classified as noncurrent in a classified balance sheet.
This Subtopic provides guidance on disclosures specific to the construction industry.
For guidance on accounting for
revenue recognition of construction-type
contracts, see Topic
606.
The following table identifies the changes made to this Subtopic.
This Subtopic addresses accounting for contract costs by construction contractors.
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section
910-10-15.
Operating unit costs for construction equipment may be included in contract cost using the use rate theory.
A rate may be arrived at, which, based on the reported use of the equipment, will serve as a basis for charging the contracts on which the equipment is used. The cost of a contractor's equipment shall be allocated to the particular contract on which it is used on a reasonable basis, such as time, hours of use, or mileage.
Idle equipment time, for example if a contractor's equipment is idle during a winter season, may be considered in determining indirect cost allocations. Allocation of idle equipment costs to contracts by use of rates geared to cover all costs is appropriate. That procedure results in rates that lessors of the same type of equipment charge users in the same location, except for the profit element.
Small tools may be accounted for as inventory or fixed assets. Small tools shall be charged to a contract as they are consumed in performance of the contract. Operating and maintenance costs of miscellaneous small tools and equipment are usually charged to overhead accounts rather than specific contracts. However, a contractor may charge the costs directly to specific contracts if they relate to specific contracts. Small tools can frequently be charged to contracts if purchased for the contracts or if issued from a central pool. Contract costs shall be credited with estimated salvage value of small tools remaining at completion of the contracts.