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West Construction, Inc. and Subsidiaries Notes to Consolidated Financial Statements As of and for the years ended December 31,'2014 and 2013 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): . Revenue and Cost Recognition The Company recognizes revenues from fixed-price construction contracts on the percentage -of - completion method, pleasured by the actual construction costs incurred to date to the estimated total construction costs for each contract. This method is used because management considers expended construction costs to be the best available measure of progress on these contracts. Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term. Revenues from cost -plus -fee contracts are recognized on the basis of costs incurred during the period plus the fee earned, measured by the cost -to -cost method. Incentive bonuses are recognized in the period in which they are earned. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools and repairs. Selling, 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. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. The asset, "Costs and estimated earnings in excess of billings on uncompleted contracts," represent revenues recognized in excess of amounts billed. The liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Certificates of Deposit The Company's certificates of deposit are recorded at their cost, which approximates fair value, and management's intention is to hold the certificates until they mature. -9of18-