# ASC 912-20-05: Contractors—Federal Government — Contract Costs — 05 Overview and Background

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/912/20/#05-overview-and-background)

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## ASC 912-20-05: 05 Overview and Background

[Read section](https://asc.understandingaccounting.org/asc/912/20/#05-overview-and-background)

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##### [912-20-05-1](https://asc.understandingaccounting.org/asc/912/20/#912-20-05-1)

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This Subtopic provides guidance to government contractors on accounting costs related to federal government contracts.

#### Federal Acquisition Legislation and Regulations

##### [912-20-05-2](https://asc.understandingaccounting.org/asc/912/20/#912-20-05-2)

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All federal government contracts and contract modifications for supplies and services or experimental, developmental, or research work, negotiated on the basis of cost with commercial entities (whether on a fixed-price or cost-plus basis), must adhere to the cost principles mandated by Federal Acquisition Legislation and Regulations in pricing negotiated supply, service, experimental, developmental, and research contracts and contract modifications whenever cost analysis is to be performed in the procurement process.

##### [912-20-05-3](https://asc.understandingaccounting.org/asc/912/20/#912-20-05-3)

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In addition, compliance with Federal Acquisition Legislation and Regulation cost principles is mandatory if an entity is involved in any of the following activities:

1.  a
    
    Determining reimbursable costs under cost-reimbursement contracts, including any cost-reimbursement subcontracts, and the cost-reimbursement portion of time and materials contracts
    
2.  b
    
    Negotiating overhead rates
    
3.  c
    
    Proposing, negotiating, and determining costs under terminated fixed-price, cost-reimbursement contracts
    
4.  d
    
    Establishing the final price of fixed-price incentive contracts
    
5.  e
    
    Redetermining prices of prospective and retroactive price redetermination contracts
    
6.  f
    
    Pricing changes in contract modifications.

#### Convenience Terminations

##### [912-20-05-4](https://asc.understandingaccounting.org/asc/912/20/#912-20-05-4)

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Termination of war and defense contracts for the convenience of the government is a means of adjusting the production of materials to the varying requirements of the military services. Because terminations transfer active contracts in process of execution into claims in process of liquidation, they, like contract renegotiations and cost-plus-fixed-fee contracts, may have important effects on the financial statements of defense contractors.

##### [912-20-05-5](https://asc.understandingaccounting.org/asc/912/20/#912-20-05-5)

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