Contracts in Progress - Asset

Account Information

Financial Statement	Statement of Financial Position
Normal Balance	Debit

Definition

A contract asset representing the entity's right to consideration for services transferred to the customer but not yet invoiced. This account arises when recognized revenue (based on percentage of completion) exceeds the value of billings issued to the customer.

📐 IFRS vs US GAAP Accounting Treatment

IFRS IFRS 15 Contracts in Progress - Contract Asset (IFRS 15)

✅ Recognition Criteria

IFRS: Contract asset is recognized when the entity transfers control of goods or services to the customer, and the right to consideration is conditional on something other than passage of time (e.g., completion of another milestone).

📏 Measurement Basis

IFRS: Contract asset is measured at the amount of consideration allocated to satisfied performance obligations, based on allocated transaction price. GAAP: Same measurement with additional detail on variable consideration.

📝 Disclosure Requirements

IFRS: Disclose contract asset and liability balances, changes during the period, and transaction price determination method. GAAP: Additional disclosures on variable consideration and constraints.

📌 Example:
Example: A contractor completed 40% of a SAR 10M project, with right to payment at 50% completion. Contract asset = SAR 4M (shown as asset until 50% reached).

US GAAP ASC 606 Contracts in Progress - Contract Asset (ASC 606)

✅ Recognition Criteria

GAAP: Contract asset recognized when entity transfers control to customer and right to consideration is conditional.

📏 Measurement Basis

GAAP: Measured at consideration allocated to satisfied performance obligations.

📝 Disclosure Requirements

GAAP: Additional disclosures on variable consideration and constraints.

📌 Example:
Example: Contractor completed 40% of SAR 10M project. Contract asset = SAR 4M.

⚠️ Key Difference Between IFRS and US GAAP

IFRS (IFRS 15): The contractual asset is presented separately from accounts receivable (unconditional clause). GAAP (ASC 606): Same concept but with differences in disclosure and timing of recognition in some sectors.

❓ Frequently Asked Questions

Q: What is a contract asset?

A: The company's right to consideration for services transferred to the customer but not yet invoiced. Typically arises when using percentage of completion.

Q: When does a contract asset become a receivable?

A: When the company's right to payment becomes unconditional (i.e., only the passage of time), such as issuing an invoice to the customer.

Q: How is a contract asset measured?

A: Measured at the amount of consideration allocated to satisfied performance obligations, based on allocated transaction price.