Generally Accepted Accounting Principles
in the United States

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Long-Term Construction-Type Contracts
(ARB No. 45)

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Accounting Research Bulletin (ARB) No. 45
   
Accounting Research Bulletin (ARB) Opinion No. 45
        a.  Long-Term Construction-Type Contracts
        b.  Issued in October 1955

 ARB No. 45 does not cover CPFF contracts.
             --> Cost-Plus-Fixed-Fee (CPFF) contracts are covered
                   by ARB No. 43 (Chapter 11A).

 Generally Accepted Methods
             a.  Percentage-of-Completion Method
             b.  Completed Contract Method

Percentage-of-Completion Method
       Income is recognized as
             --> percentage of estimated total income.

       Percentage of completion
             --> costs incurred to date / estimated total costs

       Costs and recognized income not yet billed
             --> current assets

       Billings in excess of costs and recognized income
             --> current liabilities

       If total contract is estimated to be a loss,
             --> provision should be made for the loss on the entire contract.

Completed-Contract Method
       Income is recognized
             --> only when the contract is (substantially) completed.

       Recording of income prior to completion
             --> is not permitted.

       If total contract is estimated to be a loss,
             --> provision should be made for expected losses.
 
Selection of Method
       Estimates are needed for the followings:
             a.  Costs to complete
             b.  Extent of progress toward completion

       If the above estimates are reasonably dependable,
             --> percentage-of-completion method is preferable.

       If the above estimates are not dependable,
             --> completed-contract method is preferable.








 
U.S. GAAP Codification
International Financial Reporting Standards (IFRS)
 
Accounting Topics
Inventory Valuation Methods
Depreciation Methods
Revenue Recognition Principle
Accrual Basis vs. Cash Basis Accounting
Basics of Journal Entries
Ratios for Financial Statement Analysis
Overview of Financial Statements








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