long-term contract


long-term contract
A contract that falls into two or more accounting periods before being completed. Such a contract may be for the design, manufacture, or construction of a single substantial asset, for example in the construction or civil engineering industries. From an accounting point of view, there is a problem in determining how much profit can be reasonably allocated to each accounting period, although the contract is not complete. Statement of Standard Accounting Practice (SSAP) 9, Stocks and Long Term Contracts, requires contracts to be assessed on an individual basis and shown in the profit and loss account by recording turnover and related activity as the contract progresses. Where the outcome of the contract can be assessed with reasonable certainty, even though it is not complete, the part of the profit that can be attributed to the work performed by an accounting date may be recognized in the profit and loss account. Attributable profit is that part of the total profit currently estimated to arise over the duration of the contract, after allowing for estimated remedial costs, maintenance costs, and increases in costs not recoverable under the contract agreement. More recently, Financial Reporting Exposure Draft 28 proposed the replacement of SSAP 9 with two international standards.

Accounting dictionary. 2014.

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