Accounting for unprofitable construction …无利可图的建设会计u2026.pdfVIP

Journal of Finance and Accountancy Accounting for unprofitable construction contracts: a teaching note John Hathorn Metropolitan State College of Denver ABSTRACT Accounting textbooks develop separate frameworks to compute the gross profit for profitable and unprofitable contracts under the percentage completion method. The reason for this is the necessity to recognize the future losses as part of the costs of construction. This paper proposes a method that captures the economic consequences of the contract and uses the same framework for the calculation of the gross profit regardless of the financial outcome. This is achieved by disclosing the actual costs incurred as the costs of construction and then recognizing separately the provision for future losses after the gross profit. It is argued that any provision for future losses should be separately disclosed as this is viewed as important information regarding management’s performance. Keywords: teaching, unprofitable contracts, percentage completion method, SOP 81-1 Accounting for unprofitable contracts, Page 1 Journal of Finance and Accountancy INTRODUCTION Accounting educators are sometimes confronted with situations where they disagree with the current persuasive teaching methodology that is used in textbooks. When this occurs instructors must evaluate the trade-offs of introducing what they believe is the conceptually superior approach into the classroom as it is confusing for students to have to learn a methodology that is not consistent with what is given in their textbook. Such a situation currently exists with the calculation of the gross profit under the percent