Reference no: EM133138004

Question - An entity is developing a multi-unit residential complex. A customer enters into a binding sales contract with the entity for a specified unit that is under construction. Each unit has a similar floor plan and is of a similar size, but other attributes of the units are different (for example, the location of the unit within the complex).

The contract inception is 1 January 2018. The price of one unit is Rs. 3,000,000. The expected date of completion and possession transfer is 31 December 2019. The entity year end is December 31. The construction is 60% complete by December 31, 2018.

The customer pays a 10% non-refundable deposit upon entering into the contract and will make progress payments during construction of the unit on December 31 each year (45% of total contract price). The contract has substantive terms that preclude the entity from being able to direct the unit to another customer. In addition, the customer does not have the right to terminate the contract unless the entity fails to perform as promised.

If the customer defaults on its obligations by failing to make the promised progress payments as and when they are due, the entity would have a right to all of the consideration promised in the contract if it completes the construction of the unit. The courts have previously upheld similar rights that entitle developers to require the customer to perform, subject to the entity meeting its obligations under the contract.

Note: Ignore financing component & ignore accounting for contract costs

Required - Make journal entries as the unit is completed and possession is transferred on due date.