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Contracts AICPA Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts



A homebuilder enters into a contract for the construction of a single-family home on the homebuilder's lot. Although the transaction includes both a lot sale and construction of a house, the contract does not distinguish between those two elements. The homebuilder does not relinquish title to the lot until closing. The issue is how the homebuilder should recognize earnings from the contract related to the lot sale and the construction of the house. Should the homebuilder use percentage-of-completion accounting under ARB 45 for the construction phase of the house regardless of title transfer on the lot or apply Statement 66 and recognize no profit on either the lot or the construction phase of the house until title passes? EITF DISCUSSION The Task Force reached a consensus that the accounting guidance for this transaction is provided in Statement 66, that is, profit recognition is not appropriate until the conditions in paragraph 5 of Statement 66 are met. Until that time, deposit accounting should be used for the construction Copyright © 1986, Financial Accounting Standards Board Not for redistribution age 1activity and the land. The Task Force reached that conclusion after receiving input from the AICPA Real Estate Committee. In reaching its consensus, the Task Force concurred with the Committee's views. STATUS No further EITF discussion is planned

Year: 2013
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