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Hi Sir
quick q
HH has agreed to provide services over a two year period for a total contract price of $200,000. In the first year costs incurred are $60,000 and 45% of the work has been completed. The contract has not progressed
as expected and HH is unsure of the final outcome of the contract, however the costs incurred are expected to be recovered.How much revenue should be recognised by HH at the end of the first year?
solution/ workings:
45% * 200,000= 90,000? but the solution says 60,000. why is this? has it got something to do with the fact that HH is unsure of the final outcome of the contract? what condition of revenue recognition IAS does it not follow… so much so that we just recognise the costs?
“has it got something to do with the fact that HH is unsure of the final outcome of the contract?”
Because we’re not sure of the ultimate outcome, we cannot recognise any amount for profit
However, we are sure that we shall recover costs
So revenue recognition is limited to the amount that covers costs
It’s as simple as that!
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