Summary Business Accounting

Question:

ThyssenKrupp AG , headquartered in Germany, is one of the world’s largest technology companies,

with 177,346 employees worldwide and primary segments in steel, technology, and capital goods and

services.

Required:

1. Access ThyssenKrupp’s most recent annual report using the Internet. Find the footnote describing

significant accounting policies. Indicate the methods that ThyssenKrupp uses to account for long-term

construction contracts when they can and cannot make an accurate estimate of the income on a

construction contract.

2. If ThyssenKrupp was a U.S. company, how would you expect its accounting for these contracts to

differ?



Answer:



Requirement 1

Per the revenue recognition section of ThyssenKrupp’s 2010 annual report, note 1: Summary of

Significant Accounting Policies:

The company’s normal method for accounting for long-term construction contracts is the

percentage of completion method, used when it can make accurate estimates of contract income:

“… Construction contract revenue and expense are accounted for using the percentage-of-

completion method, which recognizes revenue as performance of the contract progresses. The

contract progress is determined based on the percentage of costs incurred to date to total estimated

cost for each contract after giving effect to the most recent estimates of total cost.”

When the company cannot make accurate estimates of contract income, it uses the cost recovery

method: “…Where the income of a construction contract cannot be estimated reliably, contract