1. What is a construction contract?

Construction contract: A written contract for the construction of an asset or combination of assets that are closely related or interdependent in terms of design, technology, function, or uses. their basics.

Fixed price construction contract: A construction contract in which the contractor accepts a fixed price for the entire contract or a fixed unit price per unit of finished product. In some cases when the price increases, that price may change depending on the terms stated in the contract.

Construction contract with additional costs: A construction contract in which the contractor is reimbursed the actual costs allowed to pay, plus (+) an additional amount calculated as a percentage (%) on these costs or are charged an additional flat fee.

A construction contract may be agreed to build a single asset, such as: A bridge, a building, an oil pipeline, a road, or the construction of a combination of closely related properties. or interdependent in their design, technology, function, or basic use, such as: An oil refinery, a complex of textile and garment factories.

The construction contract also includes:

(a) Contracts for services directly related to the construction of the property, such as: Consulting, design and survey contracts; Architectural and project management service contract;

(b) Contracts for the restoration or destruction of properties and for the restoration of the environment after the destruction of the properties.

2. Principles of revenue recognition and determination of construction contracts according to accounting regulations

2.1.Recognizing construction contract revenue according to Circular 200/2014/TT-BTC on enterprise accounting regime

Principles of revenue recognition and determination of construction contracts

a) Revenue from a construction contract includes:

– Initial revenue recorded in the contract;

– Contract performance increases, decreases, bonuses and other payments if they are likely to change revenue, and can be reliably determined:

+ Contract revenue may increase or decrease from time to time, for example: Contractor and customer may agree on changes and requirements that increase or decrease contract revenue in the next period. according to the first approved contract; The revenue agreed in the contract with a fixed price may increase due to the increase of the price; Contractual revenue may be reduced because the contractor fails to comply with the schedule or fails to ensure the construction quality as agreed in the contract; When a fixed-price contract stipulates a fixed price for a unit of finished product, contract revenue will increase or decrease as product volume increases or decreases.

+ Bonuses are additional payments to contractors if the contractor performs the contract to meet or exceed the requirements. The bonus is included in the revenue of the construction contract when two conditions are met: (i) It is certain to meet or exceed a number of specific standards stated in the contract; (ii) The bonus amount is reliably determined.

– Other payments received by the contractor from the customer or another party to cover costs not included in the contract price. Example: Delays caused by customers; Errors in specifications or design and disputes over changes in contract performance. The determination of additional revenue from the above payments is subject to many uncertainties and often depends on the outcome of many negotiations. Therefore, other payments are only included in the revenue of the construction contract when:

+ The agreements have been reached, the customer will accept the compensation;

+ Other payments that are approved by the customer and can be reliably determined.

b) Revenue from construction contract is recognized in 1 of 2 following cases:

– Where the construction contract stipulates that the contractor is paid according to the planned schedule, when the results of the construction contract performance can be estimated reliably, the revenue of the construction contract is recognized in the same manner. corresponding to the completed work as determined by the contractor on the date of the financial statements, regardless of whether the invoice is paid according to the planned progress or not and the amount stated on the invoice;

– Where the construction contract stipulates that the contractor is paid according to the value of the volume to be performed, when the result of the construction contract performance is reliably determined and confirmed by the customer, the revenue and Contract-related costs are recognized in proportion to the completed work that is confirmed by the customer in the period reflected in the issued invoice.

c) When the outcome of a construction contract cannot be reliably estimated, then:

– Revenue is recognized only to the extent of contract costs incurred for which it is probable that reimbursement will be made;

– Contract costs are only recognized as expenses in the period when these costs have been incurred.

2.2. Recording construction contract revenue according to Circular 133/2016/TT-BTC on Accounting regime for small and medium enterprises

Principles of revenue recognition and determination of construction contracts:

a) Revenue from a construction contract includes:

– Initial revenue recorded in the contract;

– Contract performance increases, decreases, bonuses and other payments if they are likely to change revenue, and can be reliably determined:

+ Contract revenue may increase or decrease from time to time, for example: Contractor and customer may agree on changes and requirements that increase or decrease contract revenue in the next period. according to the first approved contract; The revenue agreed in the contract with a fixed price may increase because of the increased price; Contractual revenue may be reduced because the contractor fails to comply with the schedule or does not ensure the construction quality as agreed in the contract; When a fixed-price contract stipulates a fixed price for a unit of finished product, contract revenue will increase or decrease as product volume increases or decreases.

+ Bonuses are additional payments to contractors if the contractor performs the contract to meet or exceed the requirements. The bonus is included in the revenue of the construction contract when two conditions are met: (i) It is certain to meet or exceed a number of specific standards stated in the contract; (ii) The bonus amount is reliably determined.

– Other payments received by the contractor from the customer or another party to cover costs not included in the contract price. Example: Delays caused by customers; Errors in specifications or design and disputes over changes in contract performance. The determination of additional revenue from the above payments is subject to many uncertainties and often depends on the outcome of many negotiations. Therefore, other payments are only included in construction contract revenue when:

+ The agreements have been reached, the customer will accept the compensation;

+ Other payments that are approved by the customer and can be reliably determined.

b) Record revenue from construction contracts as follows:

When the outcome of a construction contract can be reliably determined and confirmed by the customer, the revenue and costs associated with the contract are recognized in proportion to the portion of the work completed by the customer. confirmed in the period reflected on the invoice made.

c) When the outcome of a construction contract cannot be reliably estimated, then:

– Revenue is recognized only to the extent of contract costs incurred for which it is probable that reimbursement will be made;

– Contract costs are only recognized as expenses in the period when these costs have been incurred.

3. Principles of revenue recognition and determination of construction contracts according to tax regulations

- Taxable price for construction and installation is the value of the work, work item or part of the handover work, exclusive of VAT.

+ In case of construction and installation including raw materials, the price of construction and installation includes the value of raw materials excluding VAT.

+ In case of construction and installation without contracting for materials, machinery and equipment, the taxable price is the construction and installation value excluding the value of materials, machinery and equipment excluding VAT.

+ In case of construction and installation, payment is made according to the project item or the value of completed construction and installation volume handed over, the price is calculated according to the value of the project item or the value of completed work volume handed over excluding VAT.

– For construction and installation, including shipbuilding, is the time of acceptance and handover of works, work items, completed construction and installation volumes, regardless of whether money has been collected or not. get money.

The invoice date for construction and installation is the time of acceptance. handover of works, work items, completed construction and installation volumes, regardless of whether money has been collected or not.

In case of multiple delivery or handover of each service item or stage, each delivery or handover must issue an invoice for the volume and value of the delivered goods and services respectively.