AASB 111 specifies the accounting treatment in the case that the outcome of a construction contract cannot be reliably estimated.The treatment specified is:
A) (a) Contract costs must be deferred and matched against revenues in the financial year in which they are recognised where it is not probable that the costs will be recovered in the current period; and (b) where it is probable that the costs will be recovered in the current period, revenue must be recognised only to the extent of the costs incurred.
B) (a) Construction costs must be recognised as a contra asset in the financial year in which they are incurred and set-off against the receivable recorded on the contract; and (b) where the receivable is less than the accrued costs, the difference must be written off as an expense in the period.
C) (a) Contract costs must be recognised as an expense in the financial year in which they are incurred; and (b) where it is probable that the costs will be recovered, revenue must be recognised only to the extent of the costs incurred.
D) (a) Construction costs must be accrued and reported as a deferred asset to the extent that it is considered probable that the costs will be recovered; and (b) revenue may be recognised only to the extent of the costs incurred.
E) None of the given answers.

Question

Quizplus · Accepted Answer

According to AASB 111, if the outcome of a construction contract cannot be reliably estimated, contract costs must be recognised as an expense in the financial year in which they are incurred; and revenue must be recognised only to the extent of the costs incurred where it is probable that the costs will be recovered. Option C is the only answer that aligns with this accounting treatment. All other options suggest different accounting treatments, which are not in compliance with AASB 111.

AASB 111 Specifies the Accounting Treatment in the Case That