Forward Job Losses

WIP Functionality to Process Job Losses as per GAAP

WIP calculation and processing to conform to GAAP* requirements as outlined by FASB®, related to anticipated losses on Job Billing contracts.

* GAAP - Generally accepted accounting principles

FASB® - Financial accounting standards board

1. JC Control File

An option to set default departments and accounts for the purpose of calculation and posting to report anticipated losses. These values will be defaulted to the Enter Job screen > WIP tab.

Note that a new tab, Forward Loss, is added for this purpose.

Pgm: JCCTRLFM - Job Cost Control File; standard Treeview path: Job Costing > Setup > Local Tables > Control File

Users must note that, this is applicable for new jobs only and all existing jobs will have null values and if needed users must update the job file accordingly.

2. Category Maintenance

Pgm: JCCATFM – Maintain Cost Categories; standard Treeview path: Job Costing > Setup > Local Tables > Enter Category

Add a column to set the default overhead forward loss percent if applicable. This will be defaulted when assigning cost codes/categories to a job via the Assign Cost Codes screen.

3. Job Maintenance

The WIP tab is modified with a checkbox option and set of fields for departments/accounts. When creating a new job, the JC Control values for these fields will be defaulted, which may be overridden by users.

Pgm: JCJOBFM – Job Setup; standard Treeview path: Job Costing > Job> Enter Job

4. Assign Cost Codes Screen

An O/H Forward Loss % column was added to the Category Detail pop-up window launched by clicking a cost code’s corresponding Category Detail button. When assigning cost codes/categories to a job, manually or via templates, the values from the pop-up window will be defaulted and may be overridden by users.

Pgm: JCPRODSU – Assign Job Cost Codes; standard Treeview path: Job Costing > Job> Assign Cost Codes

Category Detail pop-up window

5. WIP Screen

Pgm: JCWIP – Enter WIP Adjustments; standard Treeview path: Job Costing > Forecasting > Work-In-Process Adjustments > Enter and Post Adjustments

Two new display only columns were added to WIP Screen: Margin Forward Loss and O/H(Overhead) Forward Loss.

Margin Forward Loss

This is calculated only when a job is in a loss position.

Margin Forward Loss = (1 - % Complete Override(if not %Complete))* Project (Job) Loss

Project (Job) Loss = Contract Override Amount (if not then Contract Amount) - Projected Cost Override (if not then Projected Cost)

When WIP is posted, separate GL transactions will be generated, which will be directed to the specified dept/accounts setup at the job level.

• Margin Forward Loss P/L     (DR)

• Margin Forward loss B/S    (CR)

Example calculation from the above screenshot:

Project (Job Loss):

Margin Forward Loss = (1 - (9.610/100)) * -840,874 =  -760,066.01

Users must note that, this column will not have a value, when the job is not in a loss position.

When, overriding the WIP values, the values of these loss columns will be recalculated by the system.

O/H (Overhead) Forward Loss 

Total Overhead Amount = Sum of (Project Cost Forecast (including risk) *O/H  Loss% ) at all Cost Code/Category levels.

If the job is in loss position, then:

O/H Forward Loss = Total Overhead Amount + Project Loss.

This amount will be posted to GL and directed to the specified O/H loss department and accounts.

If the job is not in loss position then check if:

Projected (Job) Profit Override (if not Project (Job) Profit) –Total Overhead Amount is greater or less than zero.

If less than zero:

this amount (Profit – Total Amount) will be posted to GL and directed to specified OH Loss     dept/accounts.

If greater than zero:

No overhead forward loss is posted.

Implementation & Process Flow

1. On the WIP tab of the JC Control File, check the Margin/Overhead Forward Loss checkbox to calculate and post the margin/overhead forward losses when processing WIP.

2. Enter the default department and accounts for the WIP Margin/Overhead Forward Loss fields.

3. In the Maintain Cost Categories screen, specify the overhead loss percent value against the required categories.

4. Create a job and verify that on its WIP tab, the Margin/Overhead Forward Loss checkbox, departments and accounts have defaulted according to the JC Control File setup. Users may override the defaults as required at the job level.

5. When assigning cost codes/categories to the job, verify that the overhead loss percent values have defaulted from the Maintain Cost Categories screen. Users may override the values as required.

6. WIP entry/posting - Two new columns to calculate and display margin forward loss and overhead forward loss values were added. A button O/H Forward Loss was added to show the details of calculated overhead amount and the sum.

7. During WIP posting, the following GL transactions are additionally posted, to show the projected loss on a job.

   Margin Forward Loss P/L* (DR)

   Margin Forward loss B/S** (CR)

   And if applicable:

   Overhead Forward Loss P/L (DR)

   Overhead Forward Loss B/S (CR)

8. Calculation logic behind the newly created column values for reporting losses if any.

   * = Profit / Loss

   ** = Balance Sheet

a) Earned Revenue calculation:

Earned Revenue = % Complete × Contract Amount (Overridden values will be used if exists)

b) Margin Forward Loss calculation:

This is calculated only when a job is in a loss position.

Margin Forward Loss = (1 ˗ % Complete Override (if not %Complete)) × Project (Job) Loss.

Project (Job) Loss = Contract Override Amount (if not then Contract Amount) ˗ Projected Cost Override (if not then Projected Cost)

When WIP is posted, separate General Ledger transactions will be generated, which will be directed to the specified department/accounts setup at the job level.

c) O/H (Overhead) Forward Loss calculation:

Total Overhead Amount = Sum of (Project Cost Forecast (including risk) × O/H Loss %) at all Cost Code/Category levels.

If the job is in a loss position:

O/H Forward Loss = Total Overhead Amount + Project Loss.

This amount will be posted to General Ledger and directed to the specified O/H loss department and accounts.

If the job is not in a loss position, check if:

Project (Job) Profit Override (if not Project (Job) Profit) ˗ Total Overhead Amount is greater or less than zero.

If less than zero:

this amount (Profit ˗ Total Overhead Amount) will be posted to General Ledger and directed to specified OH Loss Dept/Accounts.

If greater than zero:

No overhead forward loss is posted.

WIP Posting Report

JC WIP Report (JCWIPREP.rep):

Calculations used in 'Gross Margin Earned' Column

When the margin forward loss functionality is on and the job is in loss position, then:

Gross Margin Earned = Gross Margin - Margin Forward Loss

(-265,000.00 - (-59,960.76)) = -205,039.24

When the margin forward loss functionality is on, but the job is not in loss, then:

The functionality stays with standard calculation, since:

Gross Margin Earned = Gross Margin × % Complete

When the margin forward loss functionality is off then (current functionality applies):

When in loss:

Gross Margin Earned = Gross Margin

When not in loss (in profit):

Gross Margin Earned = Gross Margin × % Complete

Calculation of the Margin Forward Loss in the report above

The job is in loss position, and hence:

Project (Job) Loss = Contract Override Amount (if not then Contract Amount) - Projected Cost Override (if not then Projected Cost)

= 125,000 - 965,874.00

= -840,874

Margin Forward Loss = (1 - % Complete Override (if not %Complete)) × Project (Job) Loss

= -760,066.01    

Appendix: Guidelines & Requirements

The following recommendations are from the following web page (note, link may have become outdated):

https://law.resource.org/pub/us/code/bean/fasb.html/fasb.605.2011.html

605-35-45 Other Presentation Matters

General

> Provisions for anticipated losses on contracts

45-1

The provision for loss arises because estimated cost for the contract exceeds estimated revenue. Consequently, the provision for loss shall be accounted for in the income statement as an additional contract cost rather than as a reduction of contract revenue, which is a function of contract price, not cost. Unless the provision is material in amount or unusual or infrequent in nature, the provision shall be included in contract cost and shall not be shown separately in the income statement. If it is shown separately, it shall be shown as a component of the cost included in the computation of gross profit.

45-2

Provisions for losses on contracts shall be shown separately as liabilities on the balance sheet, if significant, except in circumstances in which related costs are accumulated on the balance sheet, in which case the provisions may be deducted from the related accumulated costs. In a classified balance sheet, a provision shown as a liability shall be shown as a current liability.