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Wiley IFRS: Practical Implementation Guide and Workbook, 3rd Edition by Liesel Knorr, Graham Holt, Abbas A. Mirza

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Chapter 8
CONSTRUCTION CONTRACTS (IAS 11)

BACKGROUND AND INTRODUCTION

The objective of IAS 11, Construction Contracts, is to prescribe the criteria for the accounting of revenue and costs in relation to construction contracts. Due to the nature of such contracts—the commencement and completion dates are usually well separated, often crossing reporting period ends—the Standard focuses on the allocation of revenue and costs to those reporting periods in which the construction contract is executed.
The Standard shall be applied in accounting for construction contracts in the financial statements of contractors. Construction contracts also include contracts for services that are directly related to the construction of an asset, such as project management or design.
DEFINITIONS OF KEY TERMS
(in accordance with IAS 11)
 
Construction contract. A contract specifically negotiated for the construction of an asset or combination of assets that are closely interrelated or interdependent in terms of their design, technology, function, or ultimate use, or purpose.
Fixed-price contract. A construction contract in which the contractor agrees to a fixed price.
Cost-plus contract. A construction contract in which the contractor is reimbursed for allowable or defined costs plus a percentage of such costs or a fixed fee.
Variation. An instruction by the customer for the change in the scope of the work to be performed in the contract.
Claim. An amount that the contractor seeks to collect from a ...

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