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Opening of Bids - High Street Sidewalk Improvements Proj No. 123-012 - Selge Construction
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Opening of Bids - High Street Sidewalk Improvements Proj No. 123-012 - Selge Construction
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5/14/2024 3:55:45 PM
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Board of Public Works
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Projects
Document Date
5/14/2024
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Selge Construction Company, Inc. <br />Notes to Financial Statements <br />Note 2. Revenue Recognition <br />The Company primarily generates revenue from fixed -price contracts in the construction of underground <br />sewer and water mains. The Company recognizes revenue over time using the percentage -of -completion <br />method The Company's contracts are generally considered to be a single performance obligation <br />because the Company provides a significant service of integrating a complex set of tasks and <br />components. Management has concluded performance obligations related to construction contracts are <br />satisfied over time because the Company's performance typically creates or enhances an asset that the <br />customer controls as the asset is created or enhanced. The Company recognizes revenue as <br />performance obligations are satisfied and control of the promised good andlor service is transferred to the <br />customer. <br />The Company's performance obligations are satisfied with the transfer of control utilizing the cost -to -cost <br />measure of progress. The cost of revenue includes all direct material, subcontracts, labor, and other <br />miscellaneous direct costs. General and administrative costs and those indirect costs related to contract <br />performance, such as indirect labor, supplies, tools, repairs and depreciation costs are charged to <br />expense as incurred. Pre -contract costs are generally expensed as incurred. <br />Changes in job performance and revisions in cost and profit estimates are reflected in the accounting <br />period in which the facts requiring the revisions become known. At the time a loss on a contract becomes <br />foreseeable. the entire amount of the estimated loss is accrued. Under the cost -to -cast approach. use of <br />estimated casts to complete each performance obligation is a significant variable in the progress of <br />determining and recognizing revenue and is a significant factor in the accounting for such performance <br />obligations. <br />The Company also performs work under cost -plus -fee contracts that are small short-term projects, and <br />uses point in time revenue recognition, which is based upon completion and billing for the project. These <br />projects are based on cost plus margin. <br />The Company's remaining performance obligations (hereafter referred to as backlog) represent the <br />unrecognized revenue on the open fixed -price contracts as of February 28, 2023. The Company's <br />backlog as of February 28, 2023, is approximately $45,707,000. <br />The transaction price for the Company's contracts may include variable consideration, which includes <br />increases in transaction price for approved or unapproved change orders and incentives. Change orders <br />and incentives are generally not distinct from the existing contract due to the significant integration <br />provided in the context of the contract and are accounted for as a modification of the existing contract and <br />performance obligation. The Company estimates variable consideration for a performance obligation at <br />the most likely amount that the Company expects to be entitled. <br />Contract assets "Costs and estimated earnings in excess of billings on uncompleted contracts," <br />represents revenue recognized in excess of amounts billed. Contract liabilities "Billings in excess of costs <br />and estimated earnings on uncompleted contracts," represent amounts billed to clients in excess of <br />revenues recognized to date. The Company's typical construction contract operating cycle is the length of <br />each individual contract, generally not exceeding 12 months. Therefore, costs incurred and amounts <br />earned on specific jobs in excess of billings are included as a current asset and billings in excess of casts <br />incurred and earnings are included as a current liability. Total revenue recognized in the year ended <br />February 28, 2023, that was included in the contract liability balance at February 28, 2022, was <br />approximately $250,000. <br />10 <br />
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