Question

Sheridan Corp. enters into a contract with a customer to build an apartment building for $1,039,000. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $148,200 to be paid if the building is ready for rental beginning August 1,2018.The bonus is reduced by $49,400 each week that completion is delayed. Sheridan commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: August 1,2018 70%

Brief Exercise 15-7 Your answer is incorrect. Try again. Sheridan Corp. anters into a contract with a customer to build an apartment building for $1,039,000. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $14,200 to be paid the building is ready for rental beginning August 1. 2018. The bonus is reduced by $49.400 each week that completion delayed. Sheridan commonly into the completion bonuses in its contracts and based on prior experience estimates the following completion outcomes Probability Completed by August 1, 2018 August 8, 2015 August 15, 2018 Arber Aug 15, 2018 (a) Determine the transaction price for the contract, assuming Sheridan is only able to estimate whether the building can be completed by August 1, 2010, or not (Sheridan estimates that the completed by August 1, 2018). (If answer iso, please entero. Do not leave any fields brank.) Transaction Price 1164970 (b) Determine the transaction price for the contra Teids blavak.) suming Sheridan has limited information with which to develop a r e estimate of comple of completion by the August 1, 2010, de diner Transaction Price T O Question Attempts: 20

Answer 1

As per IAS 18, Revenue Recognition, revenue can be recognised when amount can be measured reliably and it is certain that the amount will be received.

(a) Because, there is 70% chance of receiving bonus, we will recognise 70% of the bonus amount to be paid if the building is ready for rental beginning August 1,2018.

70% of performance bonus = $148,200 * 70% = $103,740

This amount will be added to the total consideration of $1,039,000 to be received on completion of building to determine the transaction price of the contract.

Transaction Price = $1,039,000 + $103,740 = $1,142,740

(b) No revenue shall be recognised as per IAS 18, unless there is a reliable estimate of completion by the August 1,2018, deadline.