Reference no: EM133152955

Question - On 3 March 20X3, Yamba Ltd entered into an agreement with Esperance Ltd to develop a new database system (both hardware and software) for Esperance Ltd. The agreement states that the total consideration to be paid for the system will be $600,000. Yamba Ltd expects that its total costs for the system will be $455,000. As the end of its reporting period, 30 June 20X3, Yamba Ltd had incurred labour costs of $125,000 and materials costs of $230,000. Of the materials costs, $50,000 is in respect of materials that have not yet been used on the system. Of the labour costs, $35,000 is an advance payment to a subcontractor who had not performed their work on the project as at 30 June 20X3. As at 30 June 20X3, Esperance Ltd had made progress payments to Yamba Ltd of $250,000.

Yamba Ltd calculates the measurement of progress using input methods in accordance with paragraph B18 of AASB 15: Revenue from Contracts with Customers.

Required -

1. Explain how revenue from the agreement with Esperance Ltd would be recognised by Yamba Ltd for the year ended 30 June 20X3 in accordance with the requirements of AASB 15.

2. Write the journal entries that would be prepared by Yamba Ltd for the year ended 30 June 20X3 to recognise revenue in accordance with AASB 15: Revenue from Contracts with Customers. Assume all of Yamba Ltd's costs are paid for in cash.