USA Pass thru cost in Percent Complete Rev Rec


PVT

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I work for an engineering firm where we use percentage of completion revenue recognition. However, we base our percent complete on labor only. This is because we typically receive no markup on outside subcontractors or other direct expenses we incur on the projects. For this reason we exclude them from percent complete and recognize dollar for dollar revenue when we incur these costs, but no profit. So in a period where a project incurs $5,000 of sub consultant cost we would recognize $5,000 of cost and $5,000 of revenue with no margin.

Much of the guidance on this topic simply talks about using total cost and does not mention excluding pass thru costs. Dies anyone have any knowledge of this?

Thank you
 
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Sep 14, 2013
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I think the circumstance you have outlined is addressed under ASC 605-35-25-53, which states, "costs as here used might exclude, especially during the early stages of a contract, all or a portion of the cost of such items as materials and subcontracts if it appears that such an exclusion would result in a more meaningful periodic allocation of income." If your position is that inclusion of these pass through costs would not result in a meaningful measures of your actual progress, then exclusion of the costs seems appropriate.
 

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