Financial Reporting-Revenue

REVISION

1. A company enters into a contract to supply a customer with a computer system. The contract also provides the customer with technical support for the next 12 months. The computer is usable without the technical support and the company often sells computers and technical support services separately.

Required:
Identify the performance obligation in this contract.

2.
(i) A company enters into a contract to construct an asset for a customer. The agreed price is RM 500,000 and the specified delivery date is 30 September 2018. However, if the asset is delivered after this date, the company will suffer a late delivery penalty of RM 20,000 for each week between 30 September 2018 and the actual date of delivery. The company estimates that the probability the asset being delivered on time is 80%. But there is a 10% probability that the asset will be delivered one week late and a further 10% probability that the asset will be delivered two weeks late.

(ii) A company which is building an asset for a customer will receive an incentive bonus of RM 100,000 if the asset is completed by the end of 2018. However, this bonus will not be paid if the completion date is any later than this (even by a single day). The bonus is in addition to the agreed price of RM 1 million and the company estimates the probability of completion by the end of 2018 to be 95%

Required:
Determine the transaction price for each of these contracts

3. Bailey constructs buildings for customers which can take many years to complete. Bailey has three contracts in progress at 30 September 20×7, which are detailed below. All of the contracts below began in the current year.
Contract 1 Contract 2 Contract 3
RM ‘000 RM ‘000 RM ‘000
Price 10,000 8,000 4,000
Costs incurred to date -6,000 -4,000 -500
Costs to complete -1,000 -6,000 -2,000
Progress 80% 60% 25%
Amount billed to date 7,000 3,000 1,000

(i) What revenue should be recorded (to the nearest thousand) in relation to contract 1? Explain your answer.
(ii) What cost of sales should be recorded (to the nearest thousand) in relation to contract 2? Explain your answer
(iii) What should be recorded in the statement of financial position (to the nearest thousand) in relation to contract 3? Explain your answer