Bill June 2011

Question: The first issue concerns a major contract involving the development of an old riverside warehouse into a conference centre in Bridgetown. An architect working on the development has discovered that the property will need significant additional structural improvements, the extra cost of which is estimated to be $350,000. The contract was originally forecast to make a profit of $200,000. The development is currently about one third complete, and will take a further 15 months to finish, including this additional construction work. The customer has been told that the completion of the contract will
be delayed by around two months. However, the contract price is fixed, and so the additional costs must be covered by Bill Co.

the question wants matter to consider and risk of material misstatement in this issue. BPP Exam kit answer is not understandable regarding the “cost should only be recognised as an asset if they are expected to be recovered” as per IFRS 15. Please help with this.