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On 31 March 20X1, Crawford enters into a contract to construct a
specialised factory for a customer. The customer paid an upfront deposit
which is only refundable if Crawford fails to complete construction in line
with the contract. The remainder of the price is payable when the
customer takes possession of the factory. If the customer defaults on the
contract before completion of the factory, Crawford only has the right to
retain the deposit.
Required:
Should Crawford recognise revenue from the above transaction
over time or at a point in time?Sir in the suggested answer they have recognised revenue at a single point of time. My query is should not it be recognised over a period of time. Kindly explain me the logic.
Hi,
This is definitely more of a SBR question but as you’re here then……..as the deposit is only refundable if they fail to complete the contract AND if the customer defaults then Crawford will retain the deposit, the likelihood of returning the money is slim so it is only right to recognise the deposit as revenue.
Thanks
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