Multiple Element Arrangements
Senior Assignment Research Paper
Executive Summary
KBR, Inc. is one of the world's premiere engineering, procurement and construction companies with a presence in five continents, offering services through ten business units. They provide defense services for the United States and other international government agencies, along with, being known as the leader of the oil and gas industry. This company has completed ground-breaking projects like producing the world's largest Floating Production Storage and Offloading vessels. KBR performs numerous projects at any given time, and usually contributes to multiple elements of each project. An issue that arises with accounting for multiple deliverable contracts is deciding when and how to recognize revenue. A company must first determine if they should recognize revenue for the contract as a whole unit or as separate units of accounting. Next, the measurement of revenue recognition must be calculated. The final step is to determine when the revenue will be recognized. Typically, this is based on the type of project or contract at hand. The Underdale Residential Land Development project served as an example to show how to properly account for a multiple deliverable contract. I decided revenue needs to be recognized for the separate units of accounting rather than as a whole unit. To find the amount of revenue for each unit, the total selling price must be allocated proportionately using the relative selling price method. The FASB Accounting Standards Codification provides guidance to make these two decisions. Finally, I recommend using the percentage-of-completion method to determine when revenue is recognized. This method is generally used for long-term contracts dealing with construction and engineering.
The purpose of this report is to determine the proper way to account for the multiple deliverable contracts at KBR, Inc. I recommend you recognize revenue for services separately rather than as
Executive Summary
KBR, Inc. is one of the world's premiere engineering, procurement and construction companies with a presence in five continents, offering services through ten business units. They provide defense services for the United States and other international government agencies, along with, being known as the leader of the oil and gas industry. This company has completed ground-breaking projects like producing the world's largest Floating Production Storage and Offloading vessels. KBR performs numerous projects at any given time, and usually contributes to multiple elements of each project. An issue that arises with accounting for multiple deliverable contracts is deciding when and how to recognize revenue. A company must first determine if they should recognize revenue for the contract as a whole unit or as separate units of accounting. Next, the measurement of revenue recognition must be calculated. The final step is to determine when the revenue will be recognized. Typically, this is based on the type of project or contract at hand. The Underdale Residential Land Development project served as an example to show how to properly account for a multiple deliverable contract. I decided revenue needs to be recognized for the separate units of accounting rather than as a whole unit. To find the amount of revenue for each unit, the total selling price must be allocated proportionately using the relative selling price method. The FASB Accounting Standards Codification provides guidance to make these two decisions. Finally, I recommend using the percentage-of-completion method to determine when revenue is recognized. This method is generally used for long-term contracts dealing with construction and engineering.
The purpose of this report is to determine the proper way to account for the multiple deliverable contracts at KBR, Inc. I recommend you recognize revenue for services separately rather than as