Reference no: EM132950803

Power Towers is a company that constructs powerlines for the power utility, Eishkom, in South Africa. The company was incorporated on 1 July 2008.

During the financial year 2018, Power Towers won a tender for a contract with Eishkom.

Amongst other legal requirements and conditions, the contract stipulated the following:

• The contract will commence on 1 July 2018 and will run for a period of 5 years.
• Power Towers will be responsible for the construction of electricity towers, electric power boxes as well as cable laying in the newly developed suburb on Sandrise, north of Johannesburg.
• Power Towers will be entitled to R5 000 000(excluding VAT) per annum payable by Eishkom annually in advance on 1 July. It has been determined that no significant financing component exists in this transaction.
• Eishkom will only be able to provide complete electricity to the suburb once work is completed by Power Towers and therefore the contract has to be finalised in 5 years.
• The electricity towers, power boxes as well as power cables will be controlled by Eishkom as it is built on land owned by Eishkom and all repairs will be completed by Power Towers in terms of a new contract that will be negotiated after completion of the current contract.

The financial director, Mr Right, of Power Towers had recently attended an IFRS update workshop and has correctly concluded that the above transactions constitute one performance obligation in terms of IFRS 15 Revenue from contracts with customers. After intensive calculations and deliberations, the Mr Right, also indicated that output methods will be used in the form of an independent certified engineer to measure progress of the contract through certified work completed over the 5 year contract.

The following valuations were reported by the certified engineer:

Dates Valuation of estimated work completed per year 30 June 2019 R4 517 000 (excluding VAT)

30 June 2020 R5 830 000 (excluding VAT)

• However, the financial manager, Mr C.Heater, indicated to you, the senior accountant, the following: " do not understand the need for the valuation that Mr Right had requested. We receive R5 000 000 per annum and we must recognise that much as revenue every year from the contract date. If not, the 2019 year will reflect a lower revenue than the actual cash received. As my bonus depends on the revenue reported for the company, not willing to only recognise what the valuator has indicated as work completed. have bills to pay and every cent counts. also believe, as have indicated need to report higher revenue for each year, therefore recognise the R5 000 000 as revenue as received from Eishkom as revenue for 2019 financial year and then record the valuators valuation for the 2020 financial year as it is in excess of what Eishkom actually pays."

Problem 1: Journalise the accounting transactions for the 2019 and 2020 financial reporting periods in the general journal of Power Towers.