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It’s from Kaplan F7, IFRS 15 Revenue Chapter, Understanding 5.
Question:
On 1 January 20×1, Castle enters into a contract with customer to construct a specialised building for consideration $10m. Castle is not able to use building themselves at any point during construction.At December 20×1 Castle has incurred cost of $6m. Cost to complete are $2m. Castle decides to measure progress towards completion based on cost incurred.
To date, Castle has received $3m from Customer
Required: How should this transaction be accounted for in the year ended 31 december 20×1?Now when i solved the question i did following which give me profit while answer at back says loss.
My answer:
1- Overall Contract:
Price: $10m
less costs to date: ($6m)
less cost to complete ($2m)
_____
Profit: $2mWhile book says cost to complete is $6m giving a loss of $2m. When i saw answer i was shocked. Please tell i solved it correctly or i have made a mistake
My answer would be:
Revenue recognised (60% x $10m) 6,000,000
Costs recognised (60% x ($6 + $2)) 4,800,000Profit recognised 1,200,000
Probably what Kaplan has done is mistyped the costs to complete figure and maybe it should be $6m to complete on top of the $6m already spent. Maybe
Best I can do, sorry!
Thanks a lot Sir Mike Little. I thought i made a mistake. I was really confused when i saw answer. My answer is same $12,00,000 Profit.
Also i am sorry for putting this urgent heading as i haven’t read the rules before posting this. Thanks a lot once again
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