Hello!
It’s another edition on IFRS is easy.
Are you a Lagosian? If you are a Lagosian, you might have sometimes secretly wished that people had no private cars cos the traffic jam in Lagos is 'crazy'.
The incessant traffic issues encountered by
inhabitants of the Economic City of Nigeria, Lagos, led to the need for the
construction of the Third Mainland Bridge in the year 1975. This bridge which
was the longest in Africa at that time, connects Lagos Island to the Mainland.
It was built by Julius Berger Nigeria Plc. and opened by President Ibrahim
Babangida in the year 1990. It is believed that the construction cost not less
than a whooping sum of one hundred and twenty two million pounds (sterling)
then. The construction took over a year before completion. Recently, the Fourth Mainland Bridge is already budding.
It is obvious from the above that it is quite
impossible for the construction of some particular contracts to last less than
a year. Some contracts can go as long as six to ten years before completion. How
then should the contractor recognize profit?
Should contractors wait till the end of
completion (regardless of the number of years it will take)? Some have argued
that the better approach is for the contractor to wait till the end of the
contract before recognizing profit as this will prevent the use of forecasts
and estimates engaged by the IAS 11 approach.
Notwithstanding, this approach
will be absurd as costs incurred during the early years of the contract would
be recognized but with no corresponding revenue. This would lead to several
years of losses, then one year of extremely high profit.
IAS 11 proffers an awesome dissection to the issues in Construction
Contracts and their treatment in the financial statements. For a complete
dosage, detailed examples and better clarification on the subject matter of IAS
11 – Construction Contracts, click below to view or download the pdf. Note: You will be amazed by the detail in
each expatiation.
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good day sir , pls a question, how do we treat a furniture that is connected to the wall under IFRS , should we classified as furniture&fitting or not
ReplyDeleteunder construction contract
ReplyDelete