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ERNEST ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 9 Note 2 - Summary of Significant Accounting Policies (cont’d.) Revenue and Cost Recognition (cont’d.) Construction Contracts Revenues on construction contracts are recognized as performance obligations are satisfied, due to the continuous transfer of control to the customer. The customer typically controls the asset under construction, as the performance creates or enhances an asset that the customer controls as the asset is created or enhanced. The Company’s construction contracts are generally accounted for as a single performance obligation, since the Company is providing a significant service of integrating components into a single project. Pursuant to master service agreements, repair and maintenance contracts, and fixed-price contracts, transaction prices are determined under unit-price, cost-plus and fixed-price lump-sum, respectively. Under contracts where the Company has a right to consideration in an amount that directly corresponds to the value of completed performance, the Company recognizes revenue when services are performed and contractually billable. This would apply to unit-price and repair and maintenance contracts where the Company recognizes revenue as completed based on contractual pricing amounts at a point in time. The Company determines the point in time by evaluating when the customer obtains control of the asset and the Company has a present right to receive payment for the asset. Under fixed-price lump-sum contracts, the Company recognizes revenue with an “input method” using the percentage-of-completion method, whereby progress towards completion is recognized according to the percentage of incurred costs to estimated total costs. This method best depicts the transfer of control to the customer, which occurs as the Company incurs costs on its contracts. Incurred costs represent work performed, which corresponds with and thereby best depicts the transfer of control to the customer. This method is used because management considers the cost-to-cost method the most appropriate in the circumstances. Because the Company almost always acts as a principal in the construction contracts, gross revenues are recognized. The Company is considered the principal because the Company controls the contractually specified goods and services before they are transferred to the customer. Revenues on uninstalled materials are recognized when control is transferred to the customer. Under certain circumstances (e.g., transfer of control occurs significantly before services are provided, the cost of the material is significant), revenue on certain uninstalled third-party materials is recognized when the cost is incurred; however, profit is not recognized until the material is ultimately installed in the project.