Revenue Recogniton

This topic has 5 replies, 2 voices, and was last updated 1 year ago by P2-D2.

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April 20, 2021 at 12:07 pm #618290
Sallywa
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Yling entered into a contract in respect of which performance obligations are satisfied over time on 1 January 20×4. The contract is expected to last 24 months. The price which has been agreed for the contract is $5M. At 30 September 20×4 the costs incurred on the contract were $1.6M and the estimated remaining costs to complete were $ 2.4M
On 20 September 20×4 Yling received a payment from the customer of $1.8M which was equal to the total of the amounts invoiced. Yling calculates the stage of completion of its performance obligations on contracts on the basis of amounts invoice to the contract price

What amount would be reported in Yling’s statement of financial position as at 30 September 20×4 as the contract asset arising from the above contract?

Why don’t we subtract the costs to date and costs to complete in this scenario?
April 21, 2021 at 9:16 pm #618452
P2-D2
Keymaster
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Hi,

We are looking at the SFP and the contract asset, so we look at the costs to incurred plus the profit to date.

Deducting the costs to date and costs to complete is done when looking to work out the profit to date that is then recognised through profit or loss over the contract life.

Thanks
April 22, 2021 at 8:51 am #618499
Sallywa
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This is the answer in the text book.

Revenue Recognised ( 5m X 38%) 1900
Less amounts invoiced (1740)
Contract Asset 160

Why haven’t they deducted the costs to date and costs to complete? And why wasnt the profit to date added to the costs incurred?
April 24, 2021 at 1:13 pm #618717
P2-D2
Keymaster
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This is an alternative way of looking at the contract asset and much easier to work out too.

Thanks
April 25, 2021 at 8:05 pm #618840
Sallywa
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I dont understand why costs to complete and costs to date was not deducted. Please explain
April 29, 2021 at 8:57 pm #619223
P2-D2
Keymaster
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Because the contract asset is measured at the amount of revenue recognised, therefore not needing to look at the amounts that you mention.

Thanks
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