Question

Bright Future signed a $700,000 contract to an d the project required three years to complete. Bright Future estimated that total contract coswabe SGD 000 The financial information during 2031 203 related to the construction contracts as the following 2002 2003 Costs incurred to date $200.000 $370,000 $610,000 Estimated costs to complete 400 000 250.000 Progress bilings made during the year 210,000 315.000 175.000 Collections of billings during the year 200,000 320,000 180,000 Additional information: 1) The customer does not have any default record. • 2) The contract is non-cancellable. If the customer terminates the contract before its expiring date, Bright Future has an enforceable right to claim the full amount of contract price. Contradictory, if Bright Future cannot complete the project and abandon the work, they will be legally forced to return all the payment to the customer plus 15% Interest. 3) Each time that the customer has been billing and paid, the progress of the project has to be approved by the customer. From the agreement, Bright Future must install an escalator. Therefore, expected Costs for the contract comprise of: Escalator cost $200,000 Arcade construction costs $400,000 $600.000 The escalator is acquired and delivered by Bright Future to the site during 20x3, and is approved and endorsed by the client. 5) If the arcade is completed on time, Bright Future will receive a performance bonus of $40,000. This amount will be reduced by $10,000 for every week the project is late. From the past experiences, the probability for the completion time is as follow: Probability Estimated completion date 25% On time 25% One week late 20% Two weeks late 20% Three weeks late Four weeks late 6) Bright Future completes the project during 20X3, and delivers the completed construction project one week later than due date. For this reason, Bright Future receives a cash bonus of $30,000 from its client. 10% Required Assume that the contract is a sale contract defined by IFRS 15. 1. Determine the amounts to be recognized in Income Statement for Profit, Revenue and Cost for the year 20X1, 20X2, and 20X3. 2. Prepare extracts of Financial Statements in respect of Construction Contracts for the year 20X1, 20X2, and 20X3. 3. Make the journal entries related to the contract for the year 20x1,20x2, and 20X3. 4. Prepare the Contract asset account.

Answer 1

Description This Answer in to determine the profit Revenue and Cost of a Contract for the financial years 2011, 20x2 and 20x3. It also shows the financial Statement, journal entries and the Contract Assct Account for the same. Solution 0 2081 Profit no Costa $200,000 Revenue = $200,000 2002 Profit 2150,000 Cost $170,000 Revenue & $320,000 20x3 Profit = - $60,000 Costa $240,000 Revenue - $ 180,000

2) Income Statement Particulara Revenue A 90x1() (1) 2. 200,000 320,000 10 200,000 110,000 150, uvo Expensest operating (6) Profit (A-B) Journal Entries (2011) Posticulars (3) Amount DV: Awal . .. Dr. 200,000 1) Expenses Me to cash Me 200,000 Dr. 200,000 (2) Cash Me - to Contracteele 205,000

Partian Ant o Casal 320.000 9) Casa M . - to contine to me 320,000 240,000 (60, voo) I Amount 200,00 20x3 Particular To Expenses Men to card ole Dr. 200,00 2 180,000 18o, vor Do Me 200,000 (2) Cash Me do Contractee

Account Am Amount 4 Dr. Contract Asset Particulars 600,000 loo, ooo Trade Receivable Contract Asset 700, voo Revenue