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ValleyCrest Holding Co. and Subsidiaries <br />Notes to Consolidated Financial Statements (continued) <br />3. Summary of Significant Accounting Policies (continued) <br />Revenue Recognition <br />The Company recognizes landscape development contracts using the percentage of completion <br />method, measured by the percentage of cost incurred to date to estimated total cost for each <br />contract. The full amount of anticipated losses on contracts is recorded as soon as such losses can <br />be estimated. Changes in job performance, job conditions, and estimated profitability, including <br />final contract settlements, may result in revisions to costs and income and are recognized in the <br />period in which the revisions are determined. <br />Applying the percentage of completion method of recognizing revenues requires the Company to <br />estimate the indicated outcome of its long -term contracts. The Company forecasts such outcomes <br />to the best of its knowledge and belief of current and expected conditions, and its expected <br />course of action. Differences between the Company's estimates and actual results often occur <br />resulting in changes to reported revenues and earnings. Such changes could have a material <br />effect on future consolidated financial statements. <br />Contract costs include all direct material and labor costs and those indirect costs related to <br />contract performance, such as indirect labor, supplies, tools, and repairs. Selling, general, and <br />administrative expenses are charged to expense as incurred. Claims revenue is recognized only <br />upon resolution of the claims. <br />The Company records maintenance service revenue as services are performed. Revenue from <br />nursery sales is recorded when goods are delivered to the customer. <br />Stock Options <br />The Company applies the fair - value -based method of accounting prescribed by FASB Statement <br />No. 123(R), Share -Based Payment, to account for common stock options granted to its <br />employees. Under this method, compensation expense is measured on the date of grant as the fair <br />value of the stock option and is recorded over the service period. A portion of the options granted <br />will vest ratably over time or upon achieving certain performance levels. The latter amount is <br />remeasured at each reporting period and recorded as expense (less the amount previously <br />recorded as expense) over the remaining service period. <br /># 1 a Lt <br />VdlE +VCrGst l ondscace Maint, 12 <br />16400 iV'R "1 1271,,1 Ave. <br />Miami, FL 3"',I, 1 �,, -1031 <br />