B2W Flipbooks

Page | 25 A concrete supplier enters into a contract to provide a concrete contractor with 100,000 cubic yards of concrete for $9 Million ($90 per cubic yard), which is to be delivered with transfer of control over a ten month period. Seven months into the contract the concrete supplier has delivered 65,000 cubic yards of concrete under the original contract and the concrete contractor has requested the concrete supplier to provide a bid for an additional 20,000 cubic yards of concrete, which is to be delivered with transfer of control over a period of two months from the contract modifi cation date. The concrete suppliers bid of $80 a cubic yard for the additional 20,000 cubic yards of concrete is refl ective of the stand alone selling price based on current quoted prices in the market place and was accepted by the concrete contractor. Should the concrete supplier account for the modifi cation as a separate contract? Yes. The contract modifi cation or change order to sell an additional 20,000 cubic yards at $80 each should be accounted for as a separate contract because the additional cubic yards are distinct and the price refl ects their stand alone selling price. Revenue on the remaining 35,000 cubic yards of concrete under the original contract should be recognized at $90 a cubic yard and the revenue from the contract modifi cation should be recognized at $80 per cubic yard as the transfer of control occurs and the performance obligation has been satisfi ed. EXAMPLE 2: SEPARATE CONTRACT Evaluating Variable Consideration (continued) > Contractor enters into an 18-month contract with developer to build an offi ce building for $2 Million. The contract for construction of the offi ce building is a single performance obligation. Later the contractor and developer agree to modify the original fl oor plan at the end of the fi rst six months which will increase the transaction price and expected cost by approximately $400,000 and $350,000, respectively. How should the contractor account for the modifi cation (change order)? The contractor should account for the change order as if it were part of the original contract. The change order does not create a separate performance obligation because the remaining goods and services to be provided under the modifi ed contract are not distinct. The contractor should update its estimate of the transaction price and its measure of progress to account for the eff ect of the change order. This will result in a cumulative revenue catch-up adjustment at the date of the contract modifi cation. EXAMPLE 3: CONTRACT MODIFICATIONS - CUMULATIVE CATCH-UP ADJUSTMENT

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