Reference no: EM132488760
Point 1: On 1st January 20x1, Constructor Limited (C Ltd) entered in to a contract to build a factory for $12 million. The company adopts the latest Financial Reporting Standards and recognises percentage of completion based on costs inputs.
Point 2: Invoicing was agreed at 20% on January 1st 20x1 at the start of the project, and subsequently in December each year as follows: 20% on December 31st 20x1, 30% on December 31st 20x2, 25% on December 31st 20x3. The balance 5% is invoiced six (6) months after the completion of and handover of the project. Collections for the invoices are received one month after the invoice is sent.
Point 3: In 20x1, the actual costs incurred amounted to $4 million and additional costs to complete the project is expected to be $8.5 million.
Point 4: In 20x2, the actual costs incurred was $4 million and the expected additional costs to complete the project in 20x3 is expected to be $4.2 million.
Point 5: The project was completed in December 20x3. Costs incurred in the year amounted to $3.8 million and no further costs are expected. C Ltd. has a 31st December year end.
Required:
Question (a) Apply IFRS 15 Revenues from contracts with customers, prepare the necessary journal entries required by C Ltd. to record the transactions for the years 20x1, 20x2 and 20x3. Journal entry narrations are not required. Provide your answers to the nearest dollar.
Question (b) Assuming the contract price included at cost an equipment purchased for $2.5 million from the manufacturer based the customer's requirements, to be installed in the building. The equipment was paid by C Ltd. and delivered to the premises in 20x1 but will not be installed until towards the end of the project. The costs was included in the actual cost for the year. Apply IFRS 15 Revenues from contracts with Customers and discuss the differences, if any, in the accounting treatment and recognition. Provide any relevant journal entries to record the construction costs, revenues recognised and provisions for losses. Journal entry narrations are not required. Support your discussion with the relevant computations.