Question

4 marks) In 20X5 We Build Stuff Corp.(WBSC) entered into a $7 million, long-term contract to construct an office building for a real-estate holding firm. WBSC, which has a December 31 year end and prepares its financial statements in accordance with IFRSs, determined that the performance obligation would be settled over time. It used the cost-to-cost input method to measure progress. Details of the progress of construction follow. (in '000s) 20X5 20X6 20X7* Costs incurred during the year $2,000 $2,500 $3,000 Cumulative costs 2,000 4,500 7,500 Estimated costs to complete 4,000 2,2000 The revised cost data was not known before 20X6. The revised cost data was not known before 20X7 Required: Determine the amount of revenue and expense to be recognized in each of the three years for t contract. Journal entries are not required.

Answer 1

Computation of revenue to be recognized in each year : in '000s

Particulars Year 20X5 Year 20X6 Year 20X7

Total Estimated cost to complete the contract $6000 $6700 $7500

Cost incurred till date $2000 $4500 $7500

% of completion = Cost incurred till date / Total

estimated cost of contract 33.33% 67.16% 100%

Amount of revenue to be recognized in each year

= Total contract revenue * % of completion $ 2333 $ 2368 $2299

$7000*33.333% $7000*(67.16-33.33)% $7000(100-67.16)%

Computation of expense to be recognized in each year

Since the changes in the estimated costs are not known in respective years. So, actual costs should be accounted for each years. in '000s

Year 20X5 Year 20X6 Year 20X7

Amount of expense to be recognized in each year $2000 $2500 $3000