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ERNEST ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 11 Note 2 - Summary of Significant Accounting Policies (cont’d.) Revenue and Cost Recognition (cont’d.) Contract Assets and Liabilities (cont’d.) The Company’s contract assets and liabilities are reported in a net position on a contract-by- contract basis at the end of each reporting period. In accordance with normal construction industry practice, the Company includes in current assets and current liabilities amounts relating to construction contracts realizable and payable over a period in excess of one year. The opening and closing balances of contract receivables, contract assets and contract liabilities from contracts with customers are as follows: Contract Receivables, Net Contract Assets Contract Liabilities Balance, January 1, 2023 343,194$ -$ -$ Balance, December 31, 2023 1,716,457$ 603,581$ 10,921$ Combining Contracts The Company evaluates whether two or more contracts with the same customer should be combined and accounted for as a single contract, and whether a single or combined contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and could change the amount of revenue and profit recorded in each period. Performance Obligations Generally, the Company’s contracts contain one performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. The Company’s performance of the contracts with customers typically provides a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units), and as such, the entire contract is accounted for as one performance obligation. The transaction price is allocated to the performance obligation and recognized as revenue when, or as, the performance obligation is satisfied with the continuous transfer of control to the customer. Less commonly, a contract may be considered to have multiple performance obligations even when they are part of a single contract. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract.