The preparation of accounts under FRS 102 requires management to make judgements, estimates and assumptions that affect the value of the turnover and profit reported in the profit and loss account for the financial year and the value of assets and liabilities recorded in the balance sheet.
Construction contracts
Turnover and profit on construction contracts is ascertained in a manner appropriate to the stage of completion of the contract. The stage of completion is measured by the proportion of contract costs incurred for work performed to date compared to the estimated total contract costs. All certified and subsequently invoiced values are assessed by and agreed with a third-party professional. The assessment of the final outcome of each contract is determined by the regular review of revenues and cost to complete the contract.
Profit on contracts is only recognised when the Company is satisfied that the risks on a contract have been mitigated to a suitable level so that the outcome of work under the contract can be assessed with reasonable certainty. When it is probable that total contract costs will exceed contract turnover, the expected loss is recognised as an expense immediately.
Variations and claims are recognised once there is sufficient certainty over the probability that they will be received, and the amount can be measured reliably.
Amounts recoverable on contracts represents the excess of the value of surveyed work over amounts invoiced or certified at the balance sheet date. Where amounts invoices or certified at the balance sheet date exceed the amount of work completed, the excess is included within payments on account.
Tangible fixed assets
Useful economic lives of tangible fixed assets are set out in the accounting policies. These estimates are the best estimate based on past experience and expected performance and are regularly reviewed to ensure they remain appropriate.