What is Loss on a long-term contract?
In short
When the total estimated costs of a long-term contract, such as a construction contract, exceed its total revenue, the entire expected loss is recognized immediately, not spread over the remaining work.
Key takeaways
- This applies whether revenue is recognized over time or at a point in time.
- If the contract is still profitable overall but less than before, the change is a catch-up adjustment, not a loss.
- Losses recognized in earlier years are reversed out when computing the current year's loss.
Where it's tested
BAR: Revenue for Specific Arrangements — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Under the input method for a long-term construction contract, revenue is recognized based on: