The National Taxation Bureau of the Southern District stated that the construction period of a profit-making enterprise contracted project ranges from several months to several years, and the construction period is more than one year. The calculation of the profit and loss of the project should adopt the percentage of completion method according to regulations. However, if there is any of the following circumstances, so that the project profit and loss cannot be estimated, the complete completion method may be adopted, and the profit and loss shall be calculated again in the year when the project is completed. 1. The project price receivable in each period cannot be estimated.
2. The input cost required to fulfill the contract and the degree of completion at the end of the period cannot be estimated.
3. The costs attributable to the contract cannot be identified.
(Article 24 of the Profit Enterprise Income Tax Review Guidelines)
The Bureau further explained that, for example, Company A contracted Project A, and the project period was from February 1, 2000 to June 30, 2011. The total project price was 10 million yuan (excluding business tax), and the estimated total cost was 9 million yuan (the total project cost). Price 10 million yuan - project profit and management fee 1 million yuan), 100 years into the project cost 3.6 million yuan. The construction period of Project A is more than one year, and the profit and loss of the project can be estimated. Therefore, Company A should adopt the percentage of completion method to calculate the profit and loss of the project in 100 years. The percentage of completion calculated by the percentage of project cost method is 40% (input cost 3.6 million yuan ÷ estimated total cost 9 million yuan), listed 100 annual operating income of 4 million yuan (total project price of 10 million yuan × completion ratio 40%), operating costs of 3.6 million yuan, and project benefits of 400,000 yuan.
The bureau reminded profit-seeking enterprises that the project contracting period is more than one year, and there is no circumstance where the above-mentioned project profit and loss cannot be reasonably estimated. The calculation of project profit and loss should adopt the completion percentage method according to regulations.
Issued by: National Taxation Bureau of the Southern District of the Ministry of Finance
| order | process |
| 1. | The construction period of the contracted project is less than one year → not adopted |
| 2. | The construction period of the contracted project is more than one year → adopted, but there are exceptions |
| order | process |
| 1. | The project cost ratio method is calculated according to the ratio of the input cost to the estimated total cost. |
| 2. | The man-hour-schedule ratio method is calculated according to the ratio of the input man-hours or labor costs to the estimated total man-hours or total labor costs. |
| 3. | The output unit ratio method is calculated according to the ratio of the output unit of the project to the total contract unit. |
| (Article 24, Item 5 of the Profit Enterprise Income Tax Review Guidelines) | |
Completion ratio = actual invested cost ÷ (actual invested cost + estimated remaining input cost)
Total contract price × completion ratio - recognized project revenue in previous years = project revenue that should be recognized in the current year
Definition of completion: Refers to the actual completion of work, the determination of the actual completion date:
1. Principle: The date when the contracted project is actually completed and handed over to the commissioner for acceptance shall prevail.
2. Exception: If the above release date cannot be checked,
For building construction projects, the date when the license is issued by the competent authority shall prevail.
For the construction of non-building projects, the date of acceptance by the entrusting person shall prevail.
3. The completion date is not the date of acceptance and the issuance of the acceptance certificate to recognize the income (Supreme Administrative Court Judgment No. 1667 in 1993)
4. After the completion of the project, the price of the changed project is re-negotiated as a new project. The term "completion" mentioned in Article 24 of the Profit Enterprise Income Tax Settlement Declaration and Inspection Standard refers to "actual completion". After the actual completion of the construction project, if there is a change If the price of the project is re-negotiated, the modified project shall be regarded as a new project, and the above-mentioned rules shall apply. (Ministry of Finance 60.3.3 Taiwan Caishui No. 31497 letter)
For construction enterprises adopting the percentage-to-completion method, if they contract projects abroad, they will issue a unified invoice to the client within the specified time limit and list it as advance payment for the project. When making a settlement declaration:
1. Multiply the projected total project revenue by the completion ratio by the end of the year, and subtract the project revenue recognized as of the end of the previous year, and the difference is the project revenue that should be recognized for the current period.
2. The project revenue recognized in the current period is not consistent with the invoiced amount of the project payment received in advance. Therefore, the following expressions should be expressed in the operating income adjustment table in the profit and loss calculation sheet of the settlement declaration:
(1) Advance receipts for projects: When making settlement declarations, the advance receipts for projects that have already been issued with unified invoices (that is, the balance of advance receipts for projects in the balance sheet) should be filled in under the current period’s advance receipts as a deduction of the amount of the issued uniform invoices , and fill in the advance receipts that have been issued a uniform invoice in the previous period (that is, the balance of the advance receipts at the beginning of the period) under the advance receipts carried forward from the previous period to the current period as an additional item to the amount of the unified invoice.
(2) Recognition of project income based on the percentage of completion method: the project revenue calculated based on the percentage of completion is added to the amount of the unified invoice in the unfinished year In the year of completion, the project revenue accumulated up to the end of the previous year, which has been recognized according to the completion percentage method, will be used as a deduction of the amount of the unified invoice.
3. In the year when the project is completed and closed, the account of project payment in advance is offset with the two subjects of "construction in progress" and "construction in progress-realized profit and loss", and the relevant actual account of the project is closed.
1. During the construction period, the adjustment of the price index or the compensation to make up for the increase in the supply of materials can be adjusted in the year of completion.
2. Check whether the estimated total cost is reasonable? During the construction period, if there are abnormal reasons (certificating documents such as architects), no adjustments shall be made arbitrarily.
3. Attention should be paid to the correctness of the input cost estimated to be completed.
4. Does the calculation of the percentage-of-completion method comply with the requirements of the audit criteria? Should the previous period be consistent? Is the calculation formula correct?
The most influential is the construction company that originally adopted the completion ratio method (conforms to Article 24 of the audit criteria). Under the EAS standard, unless certain conditions are met (the table after the detailed text) should be based on the income from commodity sales The principle of recognition is to recognize revenue when the ownership of the goods is transferred.
| construction industry | construction industry | |||
| Financial Accounting-EAS | the tax | Financial Accounting-EAS | the tax | |
| income | Reliable estimate of the outcome of a construction contract- Percentage of completion method - Contract revenue related to construction contracts is recognized as revenue at the end of the reporting period by reference to the degree of completion of contract activities. The outcome of the construction contract cannot be estimated reliably- Cost recovery method - revenue is recognized only to the extent that contract costs incurred are expected to be recovered with a high probability. | Same as the left, but the percentage of completion method should be adopted for construction contracts with a construction period of more than one year as stipulated in taxation. | If the buyer has no right to decide and change the design of the main engineering structure of the real estate commodity, the principle of recognition of revenue from commodity trading shall be followed. (recognized as revenue upon transfer of ownership) | Same as the left, there is no difference in taxation and finance. |
| Cost | Reliable estimate of the outcome of a construction contract- Percentage of completion method - Contract costs relating to construction contracts are recognized as expenses at the end of the reporting period by reference to the degree of completion of contract activities. The outcome of the construction contract cannot be estimated reliably- Cost recovery method - contract costs should be recognized as expenses in the current period. When it is probable that total contract costs will exceed total contract revenue, an expected loss is recognized immediately. | Same as the left, but the percentage of completion method should be adopted for construction contracts with a construction period of more than one year as stipulated in taxation. | In terms of income, it should be recognized according to the cost of commodity sales. In addition, the advertising and promotional expenses paid for the sale of real estate can be directly attributed to a certain contract and the future economic benefits are uncertain, so the current recognized expenses incurred during the pre-sale period cannot be capitalized. | Promotion expenses related to sales of real estate are deferred until the point of recognition of revenue, and are recognized in proportion to sales. |
A: The text of the foundation’s letter No. 083 (74) on December 4, 1974: The future economic benefits of advertising expenditures are extremely uncertain, and it is impossible to predict the future economic benefits. The time limit and the form of generating benefits should be treated as current expenses. However, if it belongs to the advertising expenditure of "special project sales", it can be deferred if it includes prepaid nature and its benefits have not yet been realized.
Therefore, when the advertising fee belongs to the pre-sale stage and can be attributed to the project, it will be deferred, and in other cases, it will be recognized as the current expense.
A: It must be listed as a deferred expense in the pre-sale year, and it can only be recognized as a deduction of the current year's expense after the completion of the year of house delivery, that is, the year when the house sales income is realized.
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