ERNEST - Laserfiche WebLink

Home Browse Search

ERNEST ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 12 Note 2 - Summary of Significant Accounting Policies (cont'd.) Revenue and Cost Recognition (cont’d.) Transaction Price The transaction price is the amount of consideration the Company expects to receive in exchange for transferring goods and services to the customer. The consideration promised in a contract with customers may include both fixed and variable amounts to the extent that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved (i.e., probable and capable of being estimated). Variable Consideration The nature of the Company’s contracts gives rise to several types of variable consideration, including claims, bonuses, incentives and/or penalties and liquidating damages. The Company includes in the contract estimates additional revenue for variable consideration when the Company believes it has an enforceable right to the modification, the amount can be estimated reliably, and it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company uses the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. These estimates are based on management’s assessment of legal enforceability, Company performance, and all information (historical, current, and forecasted) that is reasonably available to the Company. Contract Modifications Contract modifications are routine in the performance of the Company’s contracts. Contracts are often modified to account for changes in the contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct and, therefore, are accounted for as part of the existing contract. The Company accounts for contract modifications as a separate contract when the modification results in the promise to deliver additional goods or services that are distinct and the increase in price of the contract is for the same amount as the standalone selling price of the additional goods or services included in the modification. Cost Recognition Contract costs include all direct material and labor costs and all other direct and indirect costs related to contract performance. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.