Darby signed a contract (for an initial three years) in August 2009 with a company called Media Today to install a satellite dish and cabling system to a newly built group of residential apartments. Media Today will provide telephone and television services to the residents of the apartments via the satellite system and pay Darby $50,000 per annum commencing in December 2009. Work on the installation commenced on 1 September 2009 and the expenditure to 30 September 2009 was $58,000. The installation is expected to be completed by 31 October 2009. Previous experience with similar contracts indicates that Darby will make a total profit of $40,000 over the three years on this initial contract. The assistant correctly recorded the costs to 30 September 2009 of $58,000 as a non-current asset, but then wrote this amount down to $40,000 (the expected total profit) because he believed the asset to be impaired. The contract is not a finance lease. Ignore discounting.
Sir provided it was not mentioned that $58000 are correct to capitalised and treated as non-current assets, could we treat it as a contract asset where obligation is satisfied over time?
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Contract
Are you asking whether we could recognise both revenue and costs of $58,000 in the period to 30 September, 2009?
I believe that's what you're asking but, if I'm right, then the answer is "No"
We've not earned any revenue because we've not started providing a service yet
When we do start to receive our $50,000 per annum, then we shall start to amortise the $110,000 capitalised non-current asset and match it against the revenue
Ok?
No, I meant if had they not mentioned about about capitalising 58000 could we show it as a contract asset? Just with the amount of cost to date 58000. Applying ifrs 15 here
Can't really show it as anything else, that is, it's certainly not an expense (just following the matching concept)
Hmm. Thank you.
You're welcome
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