Construction Contract Revenue Recognition Frs 102

Construction Contract Revenue Recognition FRS 102: What You Need to Know

In the world of construction, revenue recognition can be a complex process. FRS 102, the UK accounting standard set out by the Financial Reporting Council, provides specific guidelines for revenue recognition in the construction industry.

Under FRS 102, construction contract revenue is recognized using the percentage of completion method. This means that revenue and associated costs are recognized over time as the contract progresses, based on the proportion of work completed.

There are two key factors to consider when determining the percentage of work completed: the stage of completion and the costs incurred to date. The stage of completion can be determined using a number of methods, such as surveys, physical examination, or the use of milestones. Costs incurred to date include all costs directly attributable to the contract, such as labor, materials, and subcontractor expenses.

When using the percentage of completion method, it is important to regularly review and revise the estimate of the total contract revenue and costs. Any changes to these estimates must be recognized in the period in which they are identified, and the percentage of completion must be adjusted accordingly.

It is also worth noting that FRS 102 requires disclosure of information about construction contracts in the financial statements. This includes the amount of revenue and profit recognized in the period, as well as the amount of contract assets and liabilities at the end of the reporting period.

In summary, construction contract revenue recognition under FRS 102 requires the use of the percentage of completion method, regular review and revision of estimates, and disclosure of information in the financial statements. By following these guidelines, construction companies can ensure compliance with FRS 102 and accurately report their financial performance to stakeholders.