Construction Contract - EDITED Reporting-AST

July 22, 2022 | Author: Anonymous | Category: N/A
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Construcon  

PFRS 15 Contracts

A c c o u n  n g fo f o r S p e c i a l T r a n s a c c o n

 





Learning Objectives:

Apply PFRS 15 to account for revenues from, and costs of, construction contracts. Account for onerous construction contracts.



Account for changes in the transaction price of a construction



contract Account for uncertainty in the collectability of contract revenue.

Applicabili Applicability ty of PFRS 15

 

An enty applies PFRS 15 Revenue from Conracs Conracs wih Cusomers Cusomers o o accoun for revenues from conracs wih cusomer. PFRS 15 shall be applied o Conracs wherein he counerpary is a cusomer. •



Revenue   – is “income arising in he course of an enty’ enty’ss ordinary actvites” Contract  – is “an agreemen beween wo or more partes ha creaes enforceable obligaton”. A conrac can be wrien, oral, or implied by anrighs entyand enty’ ’s cusomary business practce.



Customer - is “a pary ha has conraced wih an enty o obain goods or services ha are an oupu of he enty's ordinary actvites in exchange for consideraton.

 

Core Principle An entity recognizes revenue to depict the t he transfer of promised goods or services to customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or service.

 

Steps in the Recognition of Revenue PFRS 15 requires he following seps in recognizing revenue: •

Step 1: Identfy he conrac wih he cusomer



Step 2: Identfy he performance obligatons in he conrac



Step 3: Deermine he ransacton price





Step 4: Allocae he ransacton price o he performance obligaton obligat on in he conrac Step 5: Recognize revenue when (or as) he enty satses a performance obliga obligaton ton

 

Step 1: Identify the contract with the

customer 

Requiremens before before a conrac wih a cusomer is accouned for under PFRS 15: a) The co conrac ac mu mus be be approved  and   and he conractng partes are commited   o i; idenfable; b) Rig igh hs an and pa paym yme ens erms are idenfable; c) The conrac has commercial subsance; subsance; & d) Th The e co cons nsid ider erat aton on is is probable  probable o collecon. collecon.

 No revenues is recognized if the contract does not meet the criteria above. Any Any consideration received sis recognized as liability

 

Definition of Construction Contract •

Construction

Contract



is a conrac

specically for heofconsructon of an assesnegotaed or a combinaton asses ha are closely inerrelaed or inerdepend in erms of he design, echnology and functon or heir ultmae purpose or use.

 

Combination of Contracts



Each conrac is accouned for separaely



However, wo or more conracs enered ino a or near he same tme wih he same cusomer (or relaed partes of he cusomer) shall be combined and accouned for as a single conrac if: a) The conr conrac ac are are negota negotaed ed as a package package wih wih a single single commer commercial cial b) objectve; The amoun amoun of consider consideraton aton o o be paid in in one con conrac rac depen depends ds on he price or performance of he oher conrac; or c) Some or all of he goods or or services services prom promised ised in in he con conrac racss are a single single performance obligaton.

 

obligationss Step 2: Identify the performance obligation in the contract

Each promise in a conrac o ransfer a disnc  good  good or services is reaed as a separae performance obligaton.

 

Identifying distinct goods or services A good or services ser vices is distnc if: a)

The customer can benet from it,  eiher on is own or ogeher wih oher resources ha are readily available o he cusomer (e.g., he good or service is regularly sold separaely); and

b) The The go good od or se serv rvic ice e is separately idenable (i.e., no an inpu o a combined oupu, does no signicanly modify he oher promises, or no highly inerrelaed wih he oher promises.)

A good or service that is not distinct shall be combined with the other  promises in the contract. Combines promises are treated treated as a single  performance obligation

 

Satisfaction of Performance Obligation A conrac incepton, he enty shall deermine •

wheher he idented performance obligaton will be satsed eiher:

1.Over time; or  2. At a point in time

 

Performance obligation satisfied over time

A performance obligaton is satsed over me if one of he following crieria is me: a) The cu cusomer simultaneously receives and consumes the benefts provided by he enty’ enty ’s performance as he enty performs. b) The enty's enty's perf performanc ormance e creaes creaes or enhances enhances an an asses asses (e.g., (e.g., work work in progress) ha the customer controls as he asses is creaed or enhanced. c) The The ent enty’ y’ss perf perfor orma manc nce e does does not not   creae an asses with an alternave use  use  o he enty and he enty has an enorceable right to payment or perormance completed to date.

 

Performance obligation satisfied at a point in time If he enty canno demonsrae ha a performance obligaton is satsed over tme, i is presumed ha he performance obligaton is satsed at a point in time.

 

Step 3: Determine the transaction price •

The enty shall deermine he ransacon price because his is he amoun a which revenue will be measured

Transaction price – is “the amount of consideration to which an entity expects to be entitles in exchange for transferring promised goods or tothird a customer, excluding amounts collected onservices behalf of parties (e.g., some sales taxes).” The consideration may include fixed amounts, variable amounts, or both.

 

Step 3: Determine the transaction price – cont’d •

In a consructon conrac, conrac, he ransacton price normally consiss of he follo following: wing: 1. The co con nrrac pri price; ce; and 2. An Any y subse subsequen quen variato variatons ns in he con conrac rac price o o he exen ha i is probable ha hey will resul in revenue and hey are capable of being measured reliably.

 

Step 3: Determine the transaction price – cont’d •

A consructon conrac may be eiher 1. Fix Fixed ed pric pricee contr contract act;; or 2. Co Cost st plu pluss cont contra ract ct.. a) Cos – plus – variabl variable e – fee fee conr conrac ac b) Cos – plus – xed xed – fee fee con conac ac

 

Step 4: Allocate the transaction price to the  performance obligations obligations •

The ransacton price shall be allocaed o each performance obligaton idented in a conr conrac ac based on he relave sand – alone prices of he distnc goods or services promised o be ransferred.



The sand – alone selling price is he price a which a promised good or service can be sold separaely separaely o a cusomer.

 

Step 5: Recognize 5: Recognize  revenue revenue when  when (or as) the entity satisfies a performance obligation •



A performance obligaton is satsed when he control  over a promised good or service is ransferred o he cusomer.  at the amount o the transacon price Revenue is measured  at allocated  o he satsed performance obligaton

 

Measuring progress towards complete satisfaction of a performance obligation For each performance obligaton satsed over tme, an •

enty shall recognize revenue over tme by measuring he

 progress owards complee satsfacton of he performance obligaton. •

Example measuremen mehods: beween coss incurred 1. In Inpu putt of meaccepable meth thod odss (e.g., relatonship o dae and oal expeced coss) 2. Ou Outp tput ut me meth thod odss (e.g., surveys of work performed)

 



Inputs method

Inpus mehods recognize revenue on he basis of eorts or inputs expended relatve o he oal expeced inpus needed o fully satsfy a performance obligaton obligaton..



Example of eors or inpus include: 1. 2. 3. 4.

Coss in incurred Res esou ourrce cess co cons nsum umed ed Labo La borr hou hourrs exp xpen ende ded d Mach Ma chin ine e hou hourrs us used

5. Time elapsed

 

Formula #1

Cost – to – Cost

Percentage of Completion

Formula #2 A variaton of he formula above is presened below:

Percentage of Completion

 

Revenue in 20x1 is compues as follows: Percentage of Completion

Percenage Percen age of completon = 1.2M ÷ 4M Percenage Percen age of completon = 30%

Revenue in 20x1 = Contract price Revenue in 20x1 = 6M x 30%

Revenue in 20x1 = ₱ 1,800,000 

Percentage of completion 

 

Case 2: Estimated 2: Estimated costs to complete The actual costs incurred in 20x1 are ₱1.2M. The estimated cost to complete as od Dec. 31, 20x1 are ₱2.8M

Requirement: How much revenue is recogniz recognized ed 20x1? Soluon: Percentage of Completion Percenage Percen age of completon = 1.2M ÷ (1.2M ÷ 2.8M)  Percenage  P ercenage of completon = 1.2M ÷ 4M Percenage of completon = 30%

Revenue in 20x1 = Contract price Revenue in 20x1 = 6M x 30%

Revenue in 20x1 = ₱ 1,800,000 

Percentage of completion 

 

Efforts – expended (labor hours – based) method Anoher applicaton of he inpus mehod is he eorts – expended (labor hours – based) method.  method.   Under his mehod, he percenage of completon is based on he “eors expended” in completng he conrac – normally in direc labor hours, raher han on coss. This mehod is mos commonly used by general conracors whose pros are direcly relaed on how hey manage subconracors raher han from he value of he subconracs hemselves. hemselves.

 

The percenage of completon is compued as follows: Percentage of Completion

or Percentage of Completion

 

Percentage of Completion

20x1 Percenage Percen age of completon = 400 ÷ (400 + 1,600)

20x2 Percenage Percen age of completon = 1,500 ÷ (1,500 + 375)

 Percenage of completon = 400 ÷ 2,000

 Percenage of completon = 1,500 ÷ 1,875

Percentage of compleon as at Dec. 31, 20x1 = 20%

Percentage of compleon as at Dec. 31, 20x2 = 80%

The percentage completed completed in 20x2 is 60% (80% minus 20%)

 

Contract costs

Conrac coss include he following:

recognized ed as assets a) Inc Increm rement ental al co costs sts o obt obtain aining ing a con contra tract ct – recogniz if hey are recoverable and avoidable. As a practcal expedien, he coss are recognized as expense if heir expeced amortzaton period in 1 year or less b) Co Cost st to u ulf lfll ll a co cont ntra ract ct – if wihin he scope of PFRS 15, hey are recognized recogniz ed as asse if hey are: i. Dir Direc ecl ly y rel rela aed ed o a con conr rac ac; ; ii.. Ge ii Gene nerra ae e or or enh enhan ance ce res resou ourc rces es;; & iii ii.. Recov ove erab able le

 

Percentage of Completion

Percenage of completon = 4,500,000 ÷ 10,000,000 Percenage o compleon = 45%

 

Presentation

A conrac where eiher pary has performed is presened in he saemen of nancial positon as a conrac liability, contract asset or receivable. •





Contract Liability – is a enty’s obligaton o ransfer goods or services o a cusomer for which he enty has received consideraton (or he amoun is due from he cusomer. Contract asset – is an enty’s righ o consideraton in exchange for goods or services ha he enty has ransferred o a cusomer when ha righ is conditoned on somehing oher han he passage of tme.  Receivable  Rece ivable – is an enty’s righ o considered ha is uncondional.

 

Remember the Scenario following: Consideraton is received or becomes due before goods or services are ransferred o he

Accounting





Recognize a conrac liabiliy

cusomer. Goods or services are ransferred o he cusomer before consideraton is received:



a. Righ Righ o o consid considerat eraton on is is condit conditonal onal b. Righ Righ o consi consider deraton aton is uncondi unconditonal tonal

 Recognize a conrac asse  Recognize a receivable

Accounting for construction contracts

 

UNDER PFRS Contract asset is recognized when the entity performs 15  but its right to consideration consideration is still still conditional. conditional. Once the entity’s right to consideration becomes unconditional, the contract asset is reclassified as





receivable. Contract liability is recognized if the consideration is received or becomes due before the entity performs.

 

Illustration 1: Percen Percentage tage of completion (cost-to-cost/ input method) On Jan. 1 2021, ABC eners e ners ino ino a conrac o consruc a building for a cusomer. ABC identes is performance obligaton o be satsed over tme. ABC uses he inpu mehod based on coss o measure is progress on he conrac. The conrac price is P9M. 2021

2022

2023

2,760,000

3,540,000

500,000

b. Bi l l i ngs pe r ye ar

50%

30%

20%

c. Coll e ct ons on bil l i ngs pe r ye ar

90%

90%

bal ance

4,140,000

700,000

-

a. Conrac coss incurre d pe r year

d. Estmaed cos o complee ( a ye ar e nd)

 





The buildings per year are saed as percenages of he conrac price. The conrac is non-cancellable The collectons on billings in 2021 and 2022 are ne of 10% reenton. “Reenon”  is he an conracor amoun wihheld he conracee and payable  o a he endbyof he conrac when he projec is compleed and acceped.

A. Compute for the gross gross profits, revenues revenues and costs of construction in 2021, 2022, and 2023

 

GROSS PROFIT Toal conrac pri ce

2021 9,000,000

2022 9,000,000

2023 9,000,000

a. Coss i ncurre d o dae

2,760,000

6,300,000

6,800,000

  Add: Est maed cos o comple e b. Est mae d oal conrac coss

4,140,000 6,900,000

700,000 7,000,000

6,800,000

  Expeced gross pro    Mul t pl y by: % of compl et on ( a/b)

2,100,000 40%

2,000,000 90%

2,200,000 100%

  Gross pro  e arne d o dae   Le ss: Gross pro  i n pri or years

840,000 0

1,800,000 (840,000)

2,200,000 (1,800,000)

  G ross pro t for the ye ar

840,000

960,000

400,000

 

REVENUE

2021

2022

2023

Toal conrac pri ce

9,000,000

9,000,000

9,000,000

Mul t ppl y by: % of compl e t on Re ve nue o dae Less: reve nue re cogni ze d In pri or years

40% 3,600,000 0

90% 8,100,000 -3,600,000

100% 9,000,000 -8,100,000

Revenue for the year Cos of consruct on

3,600,000 (2760000)

4,500,000 (3540000)

900,000 (500000)

840,000

960000

400000

Gross pro  for he year

 

2021 Journal entries a. Inccurence of cost Tradional Tr adional accounng Construcon in progress   Cash (or other account)

PFRS 15

2,760,000 Conrac coss 2,76 2, 760, 0,00 000 0 Cash (or oher accoun) Cash

2,760,000 2,760,000

b. billing Tradional accounng Tradional 4,500,000 Accounts receivable   Progress billings

B. Provide Journal Entries

(9M*50%)

4,500,000

c. collecon Tradional Tr adional accounng 4,050,000 Cash (4.5M*90%)   Accounts receivable

4,050,000

d. revenue recognion Tradional Tr adional accounng Cost of Construcon 2,760,000 Construcon In progress 840,000   Revenue

PFRS 15 Receivable

4,500,000

Conrac liabiliy

4,500,000

PFRS 15 Cash Receivable

4,050,000 4,050,000

PFRS 15 Conrac li liabiliy 3,600,000 Revenue 3,600,000

3,600,000 Cos Cos of of Co Consructon

2,760,000

Conrac coss

 

 

20 2022 22 Journal entries

Traditonal accountng Consructon in progress  

Cash

Accouns recei vabl e  

Progress bil li ngs (9M*30%)

Cash (2.7M*90%)  

Accouns recei vabl e

PFRS 15

3,540,000 3,540,000 2,700,000 2,430,000

Recei vable Conrac l iabi l iy Cash

2,430,000 3,540,000

Consructon in progress

960,000

Revenue

Cash

2,700,000

Cos of consructon  

Conrac coss

Recei vable Conrac l iabi li y Revenue

3,540,000 3,540,000 2,700,000 2,700,000 2,430,000 2,430,000 4,500,000 4,500,000

4,500,000 Cos of consructon  

Conrac coss

3,540,000 3,540,000

2,760,000

 

2023 Journal entries

Tradi t onal account ng Consruct on i n progre ss 5,000,000 Conrac coss   Ca C ash 5,000,000 Cash A ccouns re ce i vabl e 1,800,000 Re ce i vabl e   Progre ss bi l l i ngs (9M*20% ) Cas h   A ccouns re ce i v abl e Cos of consruct on Consruct on i n progre ss   Re v e n u e Progre ss bi l l i ng   Consruct on i n progre ss (to eliminate the accounts)

1,800,000 Conrac l i abi l i y 2,520,000 Cash 2,520,000 Re ce i vabl e 500,000 Conrac l i abi l i y 400,000 Re v e n u e 900,000 9,000,000 Cos of consruct on 9,000,000 Conrac coss

PFRS 15 5,000,000 5,000,000 1,800,000 1,800,000 2,520,000 2,520,000 900,000 900,000 500,000 500,000

 

C. Determine the amounts presented in the financial statements ABC Co. Statement of nacial posion Tradit onal account ng Curre n asse s Accoun rece ivabl e Consruct on in progre ss

2022

450,000

7 72 20,000 8,100,000

Le ss: Progress bi ll i ngs

2023

Curre n asses

2021

2022

Recei vabl e Conrac asse

450,000

720,000 900,000

Toal

450,000

1,620,000

2023

7,200,000

Gross amoun due from cusome r Toal

PFRS 15

2021

900,000 450,000

1,620,000

0

0

ABC Co. Statement of prot or loss

Re v e n u e Cos Cos  of cons ons ru ruccton Gro ss p ro  

Trad i t o n al acco u nt n g 2021 3, 600,000 -2 -2,7 ,76 60,0 ,00 00 840,000

2022 4,500,000 -3 -3,5 ,54 40,0 ,00 00 960,000

2023 900,000 -5 -50 00,0 ,00 00 400,000

Re v e nu e Cos Cos  of cons ons ru ruccton Gro ss pro  

PF RS 15 2021 3,600,000 2,7 ,76 60,0 ,00 00 840,000

2022 4, 500,000 3,5 ,54 40,0 ,00 00 960,000

2 20 023 900,000 -50 -500,0 ,00 00 400,000

 



Output Methods

Oupu mehods recognize revenue on he basis of direc measuremens he relatve value o o hehe cusomer of hegoods goodsor or services ransferred o of dae remaining services promise under he conrac.

Example: a) Surve Surveys ys of of perf perfor orman mance ce com comple plee ed d o o dae dae b) App Apprais raisals als of resul resuls s achieve achieved, d, miles milesones ones reach reached, ed, tme tme elapsed elapsed and and unis unis produced or unies delivered.

 

SOLUTION N o. of ki l om e e rs com pl e e d o dae Divide by: TToal oal kilomee kilomeers rs o be com pl e e d Pe rce ntage of comple  on to date

2021 10.25

2022 32.8

41 25%

41 80%

 

PROFITS •

Estmaed oal conrac cos are equal o he cos incurred o dae plus estmaed coss o complee a each year-end. These are compued as follows: •



2021: (2.3B+7.7B)= 10B 2022: (2.3B+5.5B+2.4B)= 10.2B

2021

2022

13B

13B

(10B)

(10.2B)

3B

2.8B

Mul tpl y by: % of compl eton

25%

80%

Pro  o dae

750M

2.24B

--

(750M)

Toal conrac pri ce Less: Estmaed oal conrac cos Expeced oal pro  from consructon

Less: Pro  recogni zed i n pri or years

Prot for the year

750M

1.49B

 

REVENUES AND COSTS C OSTS OF CONSTRUCTION 2021

2022

Toal conrac price

13B

13B

Multply by: % of completon

25%

80%

Conrac revenue o dae Less: Conrac revenue recognized in pri or years

3.25B --

10.4B (3.25B)

Conrac revenue for he year

3.25B

7.15B

Less: Cos of consructon (SQUEEZE)

(2.5B)

(5.66B)

Prot for the year

750M

1.49B

Unlike the cost-to-cost method, under the output method, the cost of construction is not equal to the actual costs incurred in that

 period.  

Reasonable measures of progress

Changes in measure of progress •

The measure of progress is updaed as circumsances change over tme o reec any changes in he oucome of he performance obligaton.

Revenue for a performance obligaton satsed over tme is recognized only if he progress owards he complee satsfacton of he performance obligaton can be reasonably measured.



If he oucome of a performance obligaton canno be reasonably measured, revenue is recognized only o he exen o coss incurred ha are expeced o be recovered.

 

Onerous Contracts



An onerous conrac is a conrac in which he unavoidable coss of meetng he obligatons o bligatons under he conrac exceed he economic benes expeced o be received under i.

Expeced losses in Onerous Conracs: Conracs: •



PSA 11 (old standard) – When i is probable ha oal conrac coss will exceed oal conrac revenue, he expeced loss is recognized immediaely as expense. PFRS 15 (current standard) – As soon as a conrac becomes onerous, an enty recognizes a provision for he loss i expecs o incur on he conrac in

accordance wih PAS 37 Provisions, Conngent Liabilies and Conngent  Assets.

 

SOLUTION

The conrac is analyzed as follows:

2021 2022 2023 Conrac pri ce 1,000,000 1.000,000 1,000,000 Conrac coss N /A 1,100,000 1,020,000 Ex pe ce d pro / l oss N /A (100,000) ( 20,000)

 

SOLUTION

The conrac is onerous in 2022. The pros (losses) are a re deermined as follows:

Re v e n u e Con Co nrrac ccos oss s in incccured ured per yea yearr G ro s s p ro   p e r y e a r Lo ss o n o n e rou s co nrac G a i n o n re v e rs a l o f p ro v i s i o n P ro   ( l o s s ) f o r  h e y e a r

2021 2022 2023 200, 000 625, 000 175, 000 (2 (2000,00 ,000) (6 (6225,00 ,000) (1 (1995,00 ,000) -----

-( 100, 000) -( 100, 000)

( 20,000) -100, 000 80,000

 

Variable Consideration If he consideraton includes a variable amoun, he enty shall estmae he amoun o which i will be entled in exchange for ransferring he promised goods or

services o he cusomer. cusomer. The amoun of variable consideraton is estmaed using eiher of he following mehods, depending on which mehod is expeced o beer predic he amoun o which he enty will be entled. •



Expected Value – he sum of probabiliy-weigh probabiliy-weighed ed amouns in in a range of possible amouns. This may be appropriae when he enty has a larger number of conracs wih similar characeri characeristcs. stcs. Most likely amount – he single mos likely likely amoun in a range range of possible amouns. amouns. This

may appropriae when here are only wono.) possible oucomes (for example, an enty eiherbeachieves a performance bonus or does

 

Example : Estimating variable consideration A consructon conrac saes a price of P1M. However, for each day ha he completon is delayed aer he deadline, he conrac price decreases by P1,000, whereas for each day ha he completon is earlier han he deadline he conrac price increases by P1,000. In additon, upon completon, a hird pary will inspec he asse and assign a ratng based on merics dened in he conr conrac. ac. If a specied ratng is me, he enty will receive a bonus of P20,000. Analysis: The consideraton includes a xed amoun of P1M and a variable amoun, which he enty needs o estmae using he mehods described earlier. •



Expeced value mehod- o estmae he variable consideraton associaed wih he daily penaly or incentve because here can be a range of possible amouns (P1M plus or minus P1,000 per day). Mos likely amoun- o estmae he variable consideraton associaed wih he incentve bonus

because here can only be wo possible oucomes ( +P200,000 or +P0 )

 

Incentive Payments Incentve paymens are additonal amouns paid o he conracor if specied performance sandards are me or exceeded. (ex; a conrac may allow for an incentve paymen o he conracor for early completon of he conrac).

 

Cost Escalations Cos escalaton is a conracual provision ha stpulaes an increase in he conrac price in he even of an increase in cerain coss. For example, an escalaton clause may specify ha he conrac price will increase wih inaton o safeguard he conracor from price changes in

maerials and labor.

 

SOLUTION Inital conrac price- P1,000,000* P1,000,000*105%(5% 105%(5% increase)= P1,050,000 Toal conrac price a. Coss incurre d o dae   Est mae d coss o compl e e b. Es Estm tmaae d o oal ccoonrac ccooss Ex pe ce d gross pro  ( l oss) Mult pl y: % of compl e ton ( a/b) Gross pro  ( loss) o dae Gross pro  in prior ye ars

2021

2022

1,000,000 224,000 476,000 700,000 300,000 32% 96,000 --

1,050,000 518,000 222,000 740,000 310,000 70% 217,000 ( 96,000)

G ross pro t for the ye ar

96,000

121,000

 

Contract Modifications A conrac modicaton is a change in he scope and/or price of a conrac ha is approved by he conractng partes, in writng, orally or implied by cusomary business practces. Similar erms are “change “c hange order order””, “variaton” “variaton”,, and “amendmen “amendmen””. A conrac modicaton is accouned for as a separae conrac if boh of he following conditons are me: a.

The sco The scope pe of h he e con conr rac ac inc incre reas ases es be beca caus use e of of he he ad addi dito ton n of of promised goods or services ha are distnc; and

b.

The con The conr rac ac pric price e incr increa ease sess by an amo amoun un ha ha re ree ec css he he sa sand nd-alone selling prices of he additonal promised goods or services.

 

A contract modification that is for notas accounted separate contract is accounted follows: for as a a)

If he he add addit iton onal al good goodss or se servi rvice cess are are dist distnc nc bu bu he he incr increa ease se in in he conrac price does no reec he sand-alone selling price, he conrac modicaton is accouned for as i i were a erminaon o he exisng conrac and he creaon o a new conrac.

b)

If h he e add addit iton onal al go good odss or or serv servic ices es ar are e no no di dist stnc nc, , h hey ey ar are e essentally par of a single performance obligaton ha is only partally satsed. Therefore, he conr conrac ac modicaton is accouned for as i i were a par o he exisng conrac.

 

Uncertainty in the Collectability of Contract Revenue Contract inception If he uncerainy in he collecabiliy of conrac revenue arises a conrac conrac. incepton, he enty does no recognize any revenue from he Any consideraton as revenue only when eiher of he following has occurred: a) The ent enty y has no rem remainin aining g obligat obligaton on o ra ransf nsfer er goods goods or servi services ces o o he cusomer and all, ir subsantally all of he consideraton has been received and is non-refundable. b) The con conrac rac has been been ermin erminae aed d and he he consid considera eraton ton recei received ved is is non-

refundable.

 

Subsequent period 

If he uncerainy in he collecabiliy of conrac revenue arises subsequen o conrac incepton, he un-collecabiliy is accouned for as

impairmen o rade asses. receivables and/or conrac

 

SOLUTION

2021

2022

Toal conrac price

10,000,000

10,000,000

a. Coss inccured o dae

2,400,000

4,500,000

  Estm tma aed coss o comple lee

3,6 ,60 00,000

1,500,000

b. E Est stm mae ed d o oal ccon onr ra ac cos sss

6,0 ,00 00,0 ,00 00

6,0 ,00 00,0 ,00 00

Expeced pro  (loss)

4,000,000

4,000,000

40%

75%

1,600,000

3,000,000

--

(1,600,000)

1 1,6 ,60 00,0 ,00 00

1,4 ,40 00,0 ,00 00

--

(1,000,000)

Multply: % of completon (a/b) Pro  (loss) o dae Pro  recogni zed in prior years To oa al Impairmen loss on receivable

Prot for the year

 

EROJANO KENZO

1,600,000

400,000

PRESENTOR  S

TH   ANK  Y OU! OU! FOR L I S T E N I N G  

GUEMO

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