lecture9 - ACCT 3220/Sep 13, 2010 Ambiguous Revenue...

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ACCT 3220/Sep 13, 2010 1 Ambiguous Revenue Recognition Scenarios: Long Term Construction Big picture example: Buff Construction has been hired on Sept 13 th , 2010 to expand the CU stadium (to 150,000 seats!) to prepare for Pac-12 competition. Expected remodel time frame is 24 months; total cost of labor + materials is $25 million; total expected billing to CU is $35 million ($10 million profit before taxes) Buff Construction would LOVE to report $35 million in revenue in 2010, but we know that’s not appropriate Buff Construction will slowly report pieces of this revenue over the next 24 months as its construction is on-going. By the end of the 24 month period, it will recognize all of the $35 million Ambiguous Revenue Recognition Scenarios: Long Term Construction Construction companies would rather not wait until completion to recognize revenue
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ACCT 3220/Sep 13, 2010 2 Ambiguous Revenue Recognition Scenarios: Long Term Construction Ambiguous Revenue Recognition Scenarios: Long Term Construction Percentage of Completion Method: how to determine how much has been completed? Note that this is a common method, but not the only one available.
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ACCT 3220/Sep 13, 2010 3 Ambiguous Revenue Recognition Scenarios: Long Term Construction Once we know how much we have completed, we can book revenue for what we
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lecture9 - ACCT 3220/Sep 13, 2010 Ambiguous Revenue...

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