The authorities of the Mercy State decided to build a 20-block shopping complex in the State on 10 January 2018. The contract was criticised as involving a small number of blocks to cater for the teeming population of the State. With the help of the building professionals in the State, the construction of the first 20 blocks was estimated to cost ₦500,000. On 20 January 2018, another construction of a 20-block shopping complex was approved by the authorities of the State. The second contract was estimated to cost ₦500,000. Entities were invited to bid for the contracts. The successful entity negotiated ₦1,305,890 for both contracts. The State and the successful entity both agreed in writing to this transaction price for both contracts. Both parties also agreed that the expected delivery date will be 30 April 2019.
Required: Based on IFRS 15, should the successful entity combine both contracts?
See a suggested answer to practice activity 13.10 here.
Suggested answer to practice activity 13.10
Since both contracts were negotiated as a package with a single commercial objective, which is to make profit (that is, on the part of the entity), the entity can combine the contracts based on IFRS 15. Also, based on IFRS 15, the promised goods which are the 20-block shopping complex and the extra 20-block shopping complex are not distinct. Therefore, the successful entity can account for the goods promised to the customer as a single performance obligation.
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