IFRS & Japanese Construction Industry Accounting Practice Standards

What are the international standard construction industry accounting procedures? What are the differences between Japanese construction industry accounting and IFRS?

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P-CAS-010
What are the IFRS international standard construction industry accounting procedures?

answer:
Let’s give a simple example to illustrate IFRS’s accounting procedures for the construction industry:
1: Asset, 2: Liability, 4: Revenue, 5: Cost.

2023/12/15 Signing Contract with client
Total contract price 10,000
Estimated cost 8,000 => Gross profit 1,000

2024/01/01-2024/01/31 Journal Entries as below:
A material
Picking (Inventory Picking List)
1Contract assets-Materials under construction 1,000
I nventory 1,000
B Outsourcing
Outsourcing pricing acceptance (outsourcing purchase order)
1Contract assets-outsourcing under construction 1,500
Provisional accounts payable 1,500

C Expenses
C-1. Direct invoice collection (voucher payable)
1 Contract assets-cost under construction 600
expenses payable 600
C-2. Please>Purchase>Purchase (Purchase Order)
1 Contract assets-cost under construction 600
expenses payable 600
C-3. Employee expenses (employee expense bill)
1 Contract assets-cost under construction 600
Expenses payable – employees 600

D Direct Labor
Manual salary sharing
1 Contract assets-Labor under construction 400
Salary expenses 400
E Indirect reallocation”
indirect cost allocation
1Contract assets-labor/expenses under construction 300
57XXXX 300

F. Income from engineering contracts
Checkout (Invoicing) (Checkout Form)
Accounts receivable 7,000 Invoiced
2Contract liabilities-project payment received in advance 7,000
Collection
Bank deposit 7,000
Accounts receivable 7,000

G. Completion percentage calculation
Actual investment cost = 5,000
Completion ratio = 5000/8000 = 0.625 rounded to 6 decimal places
Revenue = 100000.625 = 6,250
Gross profit=6250-5000= 1,250

H. End-of-month profit and loss settlement
5 Project Cost-Material 1,000
5 Engineering cost-outsourcing 1,500
5 Project cost-expense 1,800
5 Project cost-labor 700
1 Contract Asset-Realized Gain 1,250
4Project income 6,250

2024/02/01-2024/02/28 Journal Entries as below:
A material
Picking up materials
1Contract assets-Materials under construction 3,000
Inventory 3,000
F. Income from engineering contracts
Checkout (Invoicing)
Accounts receivable 3,000
2 Contract liabilities-project payment received in advance 3,000

G. Completion percentage calculation
Actual input cost = 3000
Completion ratio=(3000+5000)/8000= 1
Income = (10,000*1)-6250 = 3,750
Gross profit=3750-3000 = 750

H. End-of-month profit and loss settlement
5 Project Cost-Materials 3,000
1 Contract Asset-Realized Gain 750
4 Project income 3,750

2024/02/28 Journal Entries when contract completed as below:
I. 100% carry forward upon project completion
2 Contract liabilities – project payment received in advance 10,000 =>Invoice for total contract price is issued
1 Contract assets-Materials under construction 4,000
1 Contract assets-outsourcing under construction 1,500
1 Contract assets-construction costs 1,800
1 Contract assets-Labor under construction 700
1 Contract Asset-Realized Gain 2,000

JP-CAS-020
What are the differences between Japanese construction industry accounting and IFRS?

answer:
(1) Although Japan has not adopted IFRS, the construction industry accounting has the same logic as IFRS.
This can be seen from the Yaoyi Construction Industry Accounting Manual
(2) Although the logic is the same, the principles for determining expenses may be different.

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(version: 2024/07)

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