INTERNATIONAL ACCOUNTING STANDARD (IAS) 11:
a) DEFINITION AND EXPLANATION OF IAS 11
IAS 11 Construction Contracts was issued by the International Accounting Standards Committee in December 1993. It replaced IAS 11 Accounting for Construction Contracts (issued in March 1979). In May 1999 a paragraph was amended by IAS 10: Events after the Balance Sheet Date. In April 2001 the International Accounting Standards Board resolved that all Standards and Interpretations issued under previous Constitutions continued to be applicable unless and until they were amended or withdrawn. IAS 11 has been amended by the following IFRSs:
* IAS 23 Borrowing Costs (as revised in March 2007)
* IAS 1 Presentation of Financial Statements (as revised in September 2007)
The following terms are used in this Standard with the meanings specified: * A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use. * A fixed price contract is a construction contract in which the contractor agrees to a fixed contract price, or a fixed rate per unit of output, which in some cases is subject to cost escalation clauses. * A cost plus contract is a construction contract in which the contractor is reimbursed for allowable or otherwise defined costs, plus a percentage of these costs or a fixed fee. * A construction contract may be negotiated for the construction of a single asset such as a bridge, building, dam, pipeline, road, ship or tunnel. A construction contract may also deal with the construction of a number of assets which are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use; examples of such contracts include those for the construction of refineries and other complex pieces of plant or equipment. * For the purposes of this Standard, construction contracts include: (a) contracts for the rendering of services which are directly related to the construction of the asset, for example, those for the services of project managers and architects; and (b) Contracts for the destruction or restoration of assets, and the restoration of the environment following the demolition of assets. * Construction contracts are formulated in a number of ways which, for the purposes of this Standard, are classified as fixed price contracts and cost plus contracts. Some construction contracts may contain characteristics of a fixed price contract and a cost plus contract, for example in the case of a cost plus contract with an agreed maximum price. The scope of the IAS 11 is:
* This Standard shall be applied in accounting for construction contracts in the financial statements of contractors. * This Standard supersedes IAS 11 Accounting for Construction Contracts approved in 1978. COMBINING AND SEGMENTING CONSTRUCTION CONTRACTS
The requirements of this Standard are usually applied separately to each construction contract. However, in certain circumstances, it is necessary to apply the Standard to the separately identifiable components of a single contract or to a group of contracts together in order to reflect the substance of a contract or a group of contracts.
When a contract covers a number of assets, the construction of each asset shall be treated as a separate construction contract when: * Separate proposals have been submitted for each asset;
* Each asset has been subject to separate negotiation and the contractor and customer have been able to accept or reject that part of the contract relating to each asset; and * The costs and revenues of each asset can be identified.
A group of contracts, whether with a single customer or with several customers, shall be treated as a single construction contract when: * (a) The...
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