PH Plumbing Inc. : A Long-Term Construction Case Study

Abstract

                                                                                                ABSTRACT

Accounting for long-term construction projects is very complex due in large part to its many industry specific nuance, which makes it difficult for one to adequately comprehend. The availability of different approaches of recognizing long-term construction revenue when coupled with the need to formulate a high number of managerial assumptions, further complicates this topic. Additionally, the available literature on long-term construction accounting is quite limited, adding further impetus for its study.  However, given the pervasiveness of the construction industry and the very commonplace nature of long-term contracts, it is critical for a student to gain an understanding of this subject matter.

This case study focuses on part 5: Recognize Revenue When (or as) the Entity Satisfies the Performance Obligation, of the five-step revenue recognition process of the recently implemented Accounting Standards Codification 606: Revenue from Contracts with Customers. The student will be asked a series of comprehensive questions relating to the revenue recognition requirements of long-term construction projects. Although this case will focus predominately on the more common and complex long-term performance contracts of recognizing revenue over a period of time and its associated input and output methods, it will also address the less likely at a single point in time scenario. This case will require the student to think critically and research authoritative accounting literature to satisfactorily complete the required assignment. This case has a wide range of applicability and designed for use in any graduate and undergraduate class which covers revenue recognition.