IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 8/ Construction Contracts (lA S II )

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59.57% ($7, 148,000) of the contrac t price is recog nized as reve nue. Therefore, $7, 148,000 less cumula– tive reven ue to year 2 of $1,265,000, or $5,883,000, is recog nized in year 3. Note (0 : The subcontrac tor advance is dedu cted from the cost, as it is an advance for work to be exe – cuted in yea r 4. The percentage complete is based on the contract cos t of $12 million less the expec ted residual value of the plant specifically acq uired for the contract plus the cos t of var iation. Th is is applied to the initial contract value of $ 16 million, as the variation is not approved. Year 4: In year 4 the contract is complete and the full contrac t revenue of $ 17 mill ion (including the approved var iation), less revenu e recogni zed in earlier years, is taken to the income statement. Ove rall, the contract has revenu e of $ 17 million and costs of $ 12.6 15 million , earning a profit of $4 ,385,000 ($2,0 16,000 + $2,369,000). The loss in year I arises solely from the initial business trip, which is not a con tract cost. BALANCE SHEET Year I Year 2 Year 3 Year 4 Cumulative progress billings $2,000,000 $7,000,000 $ 16,000,000 Variation 1,000,000 Total cumulative billings 2,000,000 7,000,000 17,000,000 Cumulative revenue recognized $ 15,000 1,265,000 9,531,000 17,000,000 Disclosed as due from customers 15,000 2,53 1,000 Disclosed as due to customers 735,000 Disclosed as debtors (retention) 1,000,000 Contracts in progress Costs incurred 15,000 1,265,000 7,515,000 nJa Recognized profits 2,016,000 nJa