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ERNEST ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 10 Note 2 - Summary of Significant Accounting Policies (cont’d.) Revenue and Cost Recognition (cont’d.) Service and Maintenance Contracts For service and maintenance contracts in which the Company has the right to consideration from the customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date, revenue is recognized when services are performed. Revenue recognized on these contracts is calculated as the amount to which the Company has the right to invoice for the services performed. 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. The customer can generally obtain the benefits from, and direct the use of, the asset. The Company’s service contracts are generally accounted for as a single performance obligation. Revenue recognized on service contracts that have not been billed to clients is classified as a current asset under contract assets on the consolidated balance sheet. Practical Expedients The Company utilizes certain practical expedients as follows: • In cases where the Company has an unconditional right to consideration from a customer in an amount that corresponds directly with the value of the performance completed to date, the Company recognizes revenue in the amount to which there is a right to invoice for services performed. • The contract price is not adjusted for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a service to a customer and when the customer pays for that service will be one year or less. • Incremental customer contract acquisition costs are expensed as they are incurred when the amortization period is less than one year in duration. Contract Assets and Liabilities Billing practices are governed by the contract terms of each project based upon costs incurred, achievement of milestones, or predetermined schedules. Billings do not necessarily correlate with revenue recognized over time using the percentage-of-completion method. Contract assets include conditional retainage and unbilled amounts typically resulting from revenue under long- term contracts when the percentage-of-completion method of revenue recognition is utilized and revenue recognition exceeds the amount billed to the customer. Contract liabilities consist of advance payments and billings in excess of revenue recognized as well as deferred revenue, net of conditional retainage.