Reference no: EM132765759
Question - Seals Development Limited currently has two construction contracts. The contracts involve the construction of a hospital at Fairview, Montego Bay and a new hotel in Freeport. The new hospital will cater for residents of Bogue, Catherine Hall and Lagoons. Meanwhile, the hotel is expected to facilitate business travellers into the western city.
However, management is unaware with regard to when revenue, cots and profits from the contracts are to be recognized. Nevertheless, based on the construction industry as well as entity's accounting policies, the outcome of a contract cannot be estimated reliably until a contract is at least 10% complete. Below are information relating to both contracts for the year ended December 31, 2016
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Hospital
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Hotel
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Contract Price
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$100,000,000
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$400,000,000
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Cost Incurred to date
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$20,000,000
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$20,000,000
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Estimated cost to complete
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$30,000,000
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$280,000,000
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Progress Billing
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$25,000,000
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$10,000,000
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Cash received
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$18,000,000
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$15,000,000
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The company uses the cost incurred to date to determine the projects' level of completion. The company recognised revenues and cost on the hospital amounting to $6,000,000 and $5,000,000 for the year ended December 31, 2015. Management indicates that contract costs incurred are probable of being recovered.
Required -
a) Prepare an extract of the statement of profits or loss to recognize contract revenue, cost and profits for the year ended December 31, 2016.
b) Prepare an extract of the statement of financial position as at December 31, 2016?
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