Construction Revenue
Code: 4130Account Information
| Financial Statement | Income Statement |
| Normal Balance | Credit |
Definition
Revenue arising from construction and contracting contracts. This revenue is recognized based on the percentage of completion or upon contract completion depending on the nature of the contract.
Sub-accounts
📐 IFRS vs US GAAP Accounting Treatment
IFRS: Revenue is recognized over time if one of three criteria is met: (1) customer receives and consumes benefits, (2) customer controls asset under construction, (3) contractor has right to payment for work completed.
IFRS: Revenue is measured based on progress toward completion using input (costs) or output (units completed) methods. GAAP: Same measurement with additional detail.
IFRS: Disclose progress measurement method, variable consideration, and contract assets/liabilities. GAAP: Additional disclosures on remaining performance obligations.
Example: Construction contract SAR 10M, incurred costs SAR 4M of SAR 8M total expected. Revenue recognized = 10 × (4/8) = SAR 5M.
GAAP: Revenue recognized over time if one of three criteria met.
GAAP: Revenue measured based on progress toward completion.
GAAP: Additional disclosures on remaining performance obligations.
Example: Contract SAR 10M, costs SAR 4M of SAR 8M. Revenue = SAR 5M.
IFRS (IFRS 15): Mandatory use of percentage of completion for construction contracts that meet the standards. GAAP (ASC 606): Same principle but with differences in determining the transaction price and handling variable consideration.
❓ Frequently Asked Questions
A: Revenue is recognized only to the extent of costs incurred that are probable of being recovered (recoverable costs method), and no profit is recognized until costs can be reliably estimated.
A: From an accounting perspective (under IFRS 15), both are treated the same way (percentage of completion). However, construction contracts often require additional disclosures (e.g., stages of completion, performance obligations, contract assets).