Opening of Bids - High Street Sidewalk Improvements Proj No. 123-012 - Selge Construction

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Selge Construction Company, Inc. Notes to Financial Statements Note 2. Revenue Recognition The Company primarily generates revenue from fixed -price contracts in the construction of underground sewer and water mains. The Company recognizes revenue over time using the percentage -of -completion method The Company's contracts are generally considered to be a single performance obligation because the Company provides a significant service of integrating a complex set of tasks and components. Management has concluded performance obligations related to construction contracts are satisfied over time because the Company's performance typically creates or enhances an asset that the customer controls as the asset is created or enhanced. The Company recognizes revenue as performance obligations are satisfied and control of the promised good andlor service is transferred to the customer. The Company's performance obligations are satisfied with the transfer of control utilizing the cost -to -cost measure of progress. The cost of revenue includes all direct material, subcontracts, labor, and other miscellaneous direct costs. General and administrative costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs are charged to expense as incurred. Pre -contract costs are generally expensed as incurred. Changes in job performance and revisions in cost and profit estimates are reflected in the accounting period in which the facts requiring the revisions become known. At the time a loss on a contract becomes foreseeable. the entire amount of the estimated loss is accrued. Under the cost -to -cast approach. use of estimated casts to complete each performance obligation is a significant variable in the progress of determining and recognizing revenue and is a significant factor in the accounting for such performance obligations. The Company also performs work under cost -plus -fee contracts that are small short-term projects, and uses point in time revenue recognition, which is based upon completion and billing for the project. These projects are based on cost plus margin. The Company's remaining performance obligations (hereafter referred to as backlog) represent the unrecognized revenue on the open fixed -price contracts as of February 28, 2023. The Company's backlog as of February 28, 2023, is approximately $45,707,000. The transaction price for the Company's contracts may include variable consideration, which includes increases in transaction price for approved or unapproved change orders and incentives. Change orders and incentives are generally not distinct from the existing contract due to the significant integration provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. The Company estimates variable consideration for a performance obligation at the most likely amount that the Company expects to be entitled. Contract assets "Costs and estimated earnings in excess of billings on uncompleted contracts," represents revenue recognized in excess of amounts billed. Contract liabilities "Billings in excess of costs and estimated earnings on uncompleted contracts," represent amounts billed to clients in excess of revenues recognized to date. The Company's typical construction contract operating cycle is the length of each individual contract, generally not exceeding 12 months. Therefore, costs incurred and amounts earned on specific jobs in excess of billings are included as a current asset and billings in excess of casts incurred and earnings are included as a current liability. Total revenue recognized in the year ended February 28, 2023, that was included in the contract liability balance at February 28, 2022, was approximately $250,000. 10