|
Welcome Guest
|
|
You are using Guest Account
|
|
||||||||||||||||||||||||||||||||||
|
TABLE OF CONTENTS CHAPTER I GENERAL PROVISIONS CHAPTER II THE SPLIT-UP AND COMBINATION OF CONTRACTS CHAPTER III CONTRACT REVENUE CHAPTER IV CONTRACT COSTS CHAPTER V RECOGNITION OF CONTRACT REVENUE AND CONTRACT COSTS CHAPTER VI DISCLOSURE CHAPTER I GENERAL PROVISIONS Article 1. For the purpose of regulating the recognition and measurement of construction contracts of enterprises (construction contractors, the same below), as well as the disclosure of relevant information, these Standards are formulated in accordance with the Accounting Standards for Enterprises-Basic Standards. Article 2. The term "construction contract" refers to contract negotiated for the construction of an asset or several assets that are closely interrelated in terms of their design, technology and function or their ultimate purpose or use. Article 3. Construction contracts are classified into fixed price contracts and cost plus contracts. A fixed price contract refers to a construction contract in which the construction price is determined based on a fixed contract price or a fixed unit price. A cost-plus contract refers to a construction contract in which the construction price is determined on the basis of the costs stipulated in the contract or costs negotiated otherwise, plus a percentage of these costs or a fixed fee. CHAPTER II THE SPLIT-UP AND COMBINATION OF CONTRACTS Article 4. Generally an enterprise shall account for each construction contract. However, if, in some cases, it is necessary to split up a single contract or combine several contracts for the purpose of reflecting the essence of a single contract or a group of contracts. Article 5. When a contract covers several assets, the construction of each asset shall be treated as a single construction contract when the following conditions are satisfied simultaneously: (1) Each asset has its own independent construction plan; (2) Each asset has been subject to separate negotiation, and the contractor and customer have been able to accept or reject the contract terms related each asset; and (3) The revenue and costs of each asset can be identified separately. Article 6. The construction of each additional asset shall be accounted for as a separate contract if either of the following conditions is satisfied: (1) The additional asset differs significantly from the asset(s) original under the original contract in terms of design, technology or function; or (2) It is not necessary to take into account of the original contract price when the price of the additional asset is separately negotiated. Article 7. A group of contracts, whether with a single customer or with several customers, shall be treated as a single construction contract when all of the following conditions are satisfied: (1) The group of contracts is signed as a single package; (2) The contracts are so closely interrelated that they are, in effect, part of a single project with an overall profit margin; and (3) The contracts are performed concurrently or in a sequential manner. CHAPTER III CONTRACT REVENUE Article 8. The contract revenue shall comprise: (1) The initial amount of revenue stipulated in the contract; and (2) Revenue resulting from variations in contract, claims and incentive payments. Article 9. A variation in a contract is an instruction by the customer for a change in the scope of the work to be performed under the contract. Revenues arising from variations in the contract shall be recognized when both of the following conditions are satisfied simultaneously: (1) The customer will approve the variation and the amount of revenues arising from the variation; and (2) The amount of revenues can be measured reliably. Article 10. A claim is an amount that is not included in the contract price and which the contractor seeks to collect from the customer or any other party as a reimbursement for costs that caused by the customer or any other party. Revenue arising from claims should be recognized when both of the following conditions are satisfied: (1) Negotiations are at a stage where it is expected that the customer will accept the claims; and (2) The amount that is accepted by the other party can be measured reliably. Article 11. Incentive payments are additional amounts agreed to be paid to the contractor by the customer if the specified performance standards are met or exceeded. Revenue arising from incentive payments should be recognized when both of the following conditions are satisfied simultaneously: (1) The contract has reached a stage of completion such that it can be concluded that the progress and quality of the contract will meet or exceed the specified performance standards; and (2) The amount of incentive payments can be measured reliably. CHAPTER IV CONTRACT COSTS Article 12. The contract costs shall comprise the direct and indirect costs incurred and attributable to a contract during the period from the date of the contract signed to the final completion of the contract. Article 13. The direct costs under a contract shall include the following items: (l) Costs of materials; (2) Labor costs; (3) Utilization expenses of equipment; and (4) Other direct costs, which refer to other expenses that may be directly recorded in the contract costs. Article 14. The indirect costs are costs incurred by construction entity or production entity subordinate to an enterprise for organizing and managing operating activities. Article 15. The direct costs shall be directly recorded as part of the contract costs when they are incurred. The indirect costs shall be allocated to the contract costs through a systematic and reasonable method. Article 16. The contract costs may be reduced by any incidental income related to the contract, for example, income from the disposal of surplus materials at the end of the contract. Article 17. The contract costs do not include the administration costs, the selling costs and the financial costs that shall be recorded in the current profits and losses. The relevant expenses arising from conclusion of a contract shall be directly recorded in the current profits and losses. CHAPTER V RECOGNITION OF CONTRACT REVENUE AND CONTRACT COSTS Article 18. If the outcome of a construction contract can be reliably estimated on the balance sheet date, the contract revenue and contract costs shall be recognized through the percentage-of- completion method. The term "percentage-of-completion method" refers to a method by which the contractor recognizes its revenues and costs in accordance with the progress of the contracted project. Article 19. The outcome of a fixed price contract can be estimated reliably when all of the following conditions are satisfied simultaneously: (1) The total contract revenue can be measured reliably; (2) The economic benefits associated with the contract will flow into the enterprise; (3) The actual contract costs incurred can be clearing identified and can be measured reliably; and (4) Both the progress of the contracted project and the contract costs to complete the contract can be reliably measured. Article 20. The outcome of a cost plus contract can be reliably estimated when the following conditions are satisfied simultaneously: (1) The economic benefits associated with the contract will flow into the enterprise; and (2) The actual contract costs incurred can be clearly identified and measured reliably. Article 21. The progress of a contracted project may be determined by the following methods: (1) The proportion of accumulative actual contract costs incurred to the estimated total contract costs; (2) The proportion of the completed contract work to the estimated total contract work; or (3) Surveys of the work performed. Article 22. When the progress of the project is determined by reference to the proportion of accumulative actual contract costs incurred to the estimated total contract costs, the following items are excluded from the actual contract costs incurred: (1) The construction costs that relate to future activity under the contract, such as costs of materials that are not installed, used or consumed during the construction; and (2) The advance payments made to subcontractors prior to the completion of the subcontracting work. Article 23. The current contract revenues in the current period shall, on the balance sheet date, be recognized according to the balance of the total contract revenues times the percentage of completion then less the accumulated revenue recognized in previous accounting periods. Meanwhile, the current contract expenses in the current period shall be recognized according to the balance of the expected total contract costs times the percentage of completion then less the accumulated expenses recognized in previous accounting periods Article 24. For a construction contract completed in the current period, the balance of the total actual contract revenues less the accumulated revenue recognized in previous accounting periods should be recognized as revenues in the current period. Meanwhile, the balance of the accumulated contract costs incurred less the accumulated contract costs recognized in previous accounting periods should be recognized as expenses in the current period. Article 25. If the outcome of a construction contract cannot be estimated reliably, it shall be treated according to the following circumstances, respectively: (1) If the contract costs can be recovered, the contract revenue shall be recognized to the extent of contract costs that can be recovered and the contract costs shall be recognized as expenses in the period in which they are incurred; (2) If the contract costs cannot be recovered, these costs shall be recognized as expenses immediately when incurred and no contract revenue may be recognized. Article 26. If the uncertainties, which causes that the outcome of a construction contract can not be measured reliably, disappear, the revenues and expenses related to the construction contract shall be recognized in accordance with Article 18 of these Standards. Article 27. If the total expected contract costs will exceed the total expected contract revenue, the expected loss should be recognized immediately as an expense in the current period. CHAPTER VI DISCLOSURE Article 28. An enterprise shall, in its notes, disclose the following information related to the construction contracts: (1) The total contract price and the methods used to determine the progress of each contracted project; (2) The aggregate amount of costs incurred and aggregate gross profits (or loss) recognized for each contract; (3) The settlement amount of each contract; and (4) The reasons and amount of the expected loss for the current period. |
||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||
|
Copyright 2002 NovexCn.com
|