During 2009 ABC started work on a Rs.

9,000,000 fixed-price contract that was

expected to have a total cost of Rs.7,500,000. Information related to this contract
follows (Rs.000s omitted):
PROFITABLE SENARIO CURRENT LOSS SENARIO TOTAL LOSS SENARIO
2009 2010 2011 2009 2010 2011 2009 2010 2011
Costs incurred during the year 1,140 4,600 2,660 Costs incurred during the year 1,140 4,600 3,100 Costs incurred during the year 1,140 4,600 3,400
Estimated costs to complete 6,460 2,460 - Estimated costs to complete 6,460 3,090 - Estimated costs to complete 6,460 3,444 -
Progress billings 1,500 4,000 3,500 Progress billings 1,500 4,000 3,500 Progress billings 1,500 4,000 3,500
Cash collected during the year 1,275 3,400 4,325 Cash collected during the year 1,275 3,400 4,325 Cash collected during the year 1,275 3,400 4,325

% complete calculation: % complete calculation: % complete calculation:

Costs to date 1,140 5,740 8,400 Costs to date 1,140 5,740 8,840 Costs to date 1,140 5,740 9,140
Estimated costs to complete 6,460 2,460 - Estimated costs to complete 6,460 3,090 - Estimated costs to complete 6,460 3,444 -
7,600 8,200 8,400 7,600 8,830 8,840 7,600 9,184 9,140

% completed 15% 70% 100% % completed 15% 65% 100% % completed 15% 63% 100%

Journal Entries Journal Entries Journal Entries

Revenue 9000 x % completed 1,350 4,950 2,700 Revenue 9000 x % completed 1,350 4,501 3,149 Revenue 9000 x % comple 1,350 4,275 3,375
Costs 1,140 4,600 2,660 Costs 1,140 4,600 3,100 Costs 1,140 4,669 3,331
Profit 210 350 40 Profit /(Loss) 210 (99) 49 Loss 210 (394) 44
Statement of Comprehensive Income 2002 2001
Contract revenue 16,000.00 14,000.00
Contract cost (13,400.00) (9,100.00)
(Loss) / profit for the year 2,600.00 4,900.00

Statement of Financial Position

Assets
Plant and Machinery 1,500.00 2,700.00
Current assets
Contract asset 1,000.00 1,500.00

Working 2002 2001

Cost incurred to date
Architects’ and surveyors’ fees 500.00
Materials delivered to site (3,100-300) 2,800.00
Direct labor costs 3,500.00
Overheads (3,500 x 40%) 20,400.00 1,400.00
Depreciation 2,100.00 900.00
22,500.00 9,100.00
Estimated cost to complete
Estimated cost 6,600.00 14,800.00
Depreciation 900.00 2,100.00
7,500.00 16,900.00
30,000.00 26,000.00
Contract price 40,000.00 40,000.00
(Loss) / profit on the contract 10,000.00 14,000.00

Stage of completion % 75% 35%

Cost incurred to date 22,500.00 9,400.00

(Loss) / Profit to date 7,500.00 4,900.00
30,000.00 14,300.00
Payments received / Progress billing (29,000.00) (12,800.00)
Contract asset 1,000.00 1,500.00
Statement of Comprehensive Income 2004 2003
Contract revenue 70.00 150.00
Contract cost (64.00) (112.00)
Rectification costs (17.00) -
(Loss) / profit for the year (11.00) 38.00

Statement of Financial Position

Assets
Contract asset 59.00

Working 2004
Cost incurred to date 195.00
Estimated cost to complete 45.00
240.00 176.00
Contract price 300.00
(Loss) / profit on the contract 60.00

Stage of completion % 220.00 73%

Cost incurred to date 195.00

(Loss) / Profit to date 44.00
239.00
Payments received / Progress billing (180.00)
Contract asset 59.00
Statement of Comprehensive Income I II III IV
Contract revenue 300.00 375.00 280.00 400.00
Incentive payments 40.00
Total Contract Price 300.00 375.00 280.00 440.00
Contract cost (315.00) (289.00) (186.00) (410.00)
(Loss) / profit for the year (15.00) 86.00 94.00 30.00

Working I II III IV
Cost incurred to date 248.00 68.00 186.00 246.00
Estimated cost to complete 67.00 221.00 - 164.00
315.00 289.00 186.00 410.00

Contract price 300.00 375.00 280.00 440.00

(Loss) / profit on the contract (15.00) 86.00 94.00 30.00

Stage of completion % 79% 24% 100% 60%

Cost incurred to date 248.00 68.00 186.00 246.00

(Loss) / Profit to date (15.00) 20.24 94.00 18.00
233.00 88.24 280.00 264.00
Payments received / Progress billing (200.00) (110.00) (280.00) (235.00)
Contract asset 33.00 - 29.00
Contract liability (21.76)
 V VI Total
270.00 1,200.00 2,825.00
40.00
270.00 1,200.00 2,865.00
(200.00) (1,175.00) (2,575.00)
70.00 25.00 290.00

V VI Total
185.00 1,175.00 2,108.00
15.00 - 467.00
200.00 1,175.00 2,575.00

270.00 1,200.00 2,865.00

70.00 25.00 290.00

93% 100% 82%

185.00 1,175.00 2,108.00

64.75 25.00 237.41
249.75 1,200.00 2,345.41
(205.00) (1,200.00) (2,230.00)
44.75 - 106.75
(21.76)
Statement of Comprehensive Income A B Total
Contract revenue 440.00 100.00 540.00
Contract cost (412.48) (116.40) (528.88)
(Loss) / profit for the year 27.52 (16.40) 11.12

Statement of Financial Position

Contract asset
Due from Customer 8.12 30.00 38.12
Account receivables @85% 119.00 - 119.00
Retention money (32.00) (4.00) (36.00)

Contact liability
Advance received from customers 16.00 32.00 48.00

Working A B
2010 2009 2010
Cost incurred to date 600.00 180.00 125.00
Retainership fee 0.60 - 1.40
600.60 180.00 126.40
Estimated cost to complete 100.00 500.00 270.00
Warranty cost 40.00 40.00 20.00
740.60 720.00 416.40

Contract price 800.00 800.00 400.00

(Loss) / profit on the contract 59.40 80.00 (16.40)

Stage of completion % 80% 25% 25%

Cost incurred to date 600.60 126.40

(Loss) / Profit to date 47.52 (16.40)
648.12 110.00
Payments received / Progress billing (640.00) (80.00)
Contract asset 8.12 30.00
Statement of Comprehensive Income 2011
Contract revenue 1,200.00
Contract cost 964.80
(Loss) / profit for the year 235.20

Statement of Financial Position

Contract Assets
Due from Customer 1,205.20
Retention money (50.00)

Contract Liability
Advance received from customers 500.00
Running finance 1,000.00

Working 2011
Cost incurred to date 1,350.00
Interest cost 120.00
1,470.00
Estimated cost to complete 2,550.00
4,020.00

Contract price 5,000.00

(Loss) / profit on the contract 980.00

Stage of completion % 24%

Cost incurred to date 1,470.00

(Loss) / Profit to date 235.20
1,705.20
Payments received / Progress billing (500.00)
Contact asset 1,205.20
Statement of Comprehensive Income 2014 2013
Contract revenue 1,050.00 1,350.00
Contract cost (1,212.50) (1,237.50)
(Loss) / profit for the year (162.50) 112.50

Statement of Financial Position

Contact Assets
Due from Customer 103.00 255.50
Account receivables @85% 85.00 63.75
Retention money 120.00 67.50

Contract Liability
Advance received from customers 60.00 165.00

Working 2014 2013

Cost incurred to date 2,553.00 1,493.00
Estimated cost to complete 347.00 1,107.00
Warranty cost 150.00 150.00
3,050.00 2,750.00

Contract price 3,000.00 3,000.00

(Loss) / profit on the contract (50.00) 250.00

Stage of completion % 80% 45%

Cost incurred to date 2,553.00 1,493.00

(Loss) / Profit to date (50.00) 112.50
2,503.00 1,605.50
Payments received / Progress billing (2,400.00) (1,350.00)
Contract Asset 103.00 255.50
Step 1 Identify the contract
- Agreement signed on 1 January, 2015
- As per terms of the agreement construction work to be completed within 18 months and maintenance services to be re

Step 2 Identifying the performance obligation

- Construction of 5-storey building
- Maintenance services for five years

Step 3 Determine the transaction price

- Rs.275 million for the entire contract
- Significant financing component is to be considered as transaction price paid in advance for more than 1 year
- Use incremental borrowing rate to calculate notional financing component

Step 4 Allocation of transaction price on stand-alone selling price

- Stand-alone selling price of 5-storey building is not given
- Stand-alone selling price of maintenance services is given i.e., 30% profit on cost
- Three method available for calculation of stand-alone selling price
a. Adjusted market assessment approach
b. Expected cost plus margin approach
c. Residual approach
- No market price information and margin information given, so residual approach will be used
- Stand-alone selling price of building = Total contract price - Stand-alone price of maintenance services

Step 5 Satisfaction of performance obligations

- Over time or point in time
- Control is transferred after completion of building i.e.., point in time
- Maintenance services revenue over time as transferred over the period
Statement of comprehensive income
2016 2015
Revenue 278.14 -
Cost
Land (50.00)
Direct materials (80.20)
Direct labor (32.60)
Directly related cost (5.80)
Building cost (168.60)
Maintenance cost (3.00)
(171.60)
106.54
Interest expense (13.49) (24.75)
Profit / (loss) 93.05 (24.75)

Statement of financial position

Fixed asset
Land - 50.00
Current asset
Contract costs - 79.07

Non-current liabilities
Contract liability 27.30 35.10

Current liability
Current portion of contract liability 7.80 264.65
intenance services to be rendered for five years

more than 1 year Incremental borrowing rate

Financing component

Stand-along selling price of building

nce services

Revenue from building

Revenue from maintenance services
 2015 2016 Total
9% 9%
24.75 13.49 38.24

Total contract price Maintenance services

275.00 39.00 236.00

2016
274.24
3.90
278.14