IAS 11 Construction Contracts

IAS 11 prescribes the contractor’s accounting treatment of revenue and costs associated with construction contracts. Work under a construction contract is usually performed in two or more accounting periods.

Consequently, the primary accounting issue is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed.

IAS 11 requires:

• when the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract to be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period; and

• when the outcome of a construction contract cannot be estimated reliably:
  • revenue to be recognised only to the extent of contract costs incurred that is probable will be recoverable; and
  • contract costs to be recognised as an expense in the period in which they are incurred.

  When it is probable that total contract costs will exceed the total contract revenue, the expected loss is recognised as an expense immediately.

  Standard history

  In April 2001 the International Accounting Standards Board (IASB) adopted IAS 11 Construction Contracts, which had originally been issued by the International Accounting Standards Committee in December 1993. IAS 11 Construction Contracts replaced parts of IAS 11 Accounting for Construction Contracts (issued in March 1979).

  This Standard was superseded by IFRS 15 Revenue from Contracts with Customers.

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