Accounting for terminated war contracts;

              Accounting Research BULLETINS
Issued by the Committee on Accounting Procedure, American Institute of Accountants,
270 Madison Avenue. New York 16, N. Y. Copyright 1945 by American Institute of Accountants
Accounting for Terminated War Contracts
THIS bulletin deals with some of the problems involved in ac-counting for fixed-price war supply contracts terminated, in whole or in part, for the convenience of the government. It does not deal specifically with terminated cost-plus-a-fixed-fee contracts nor with contracts for facilities or services, although the conclusions reached herein may serve as guides for the accounting applicable to such special contracts. Contracts terminated for default of the contractor are not considered because it is expected that their num-ber will be relatively small and because the accounting problems arising therefrom are different.
Except where the text of this bulletin clearly indicates otherwise, the term "contractor" is used to denote either a prime contractor or a subcontractor, and the term "contract" to denote either a prime contract or a subcontract.
SUMMARY STATEMENT
(1) The profit of a contractor on a fixed-price supply contract terminated for the convenience of the government accrues as of the effective date of termination.
(2) For the preparation of financial statements subsequent to termination, those parts of the termination claim which are reason-ably determinable should be recorded; when the aggregate amount of the undeterminable elements is believed to be material, full dis-closure with respect thereto should be made by footnote or otherwise.
(3) Under ordinary circumstances, the termination claim should properly be classified as a current asset and separately disclosed in the financial statements unless relatively small in amount.
(4) Advance payments received on the contract before its termination may be shown on the contractor's financial statements subsequent to termination as a deduction, appropriately explained, from the amount of the claim receivable. Loans negotiated on the security of the termination claim, however, should be recorded as current liabilities.
(5) All of the contractor's own cost and profit elements included in the termination claim should preferably be accounted for as a
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April, 1945
NO. 25