Practice Activity 13.12 Implications of customer-induced contract delay and accounting for contract

Contract extension due to delay on the part of the customer that affects the ability of a contractor to commence construction activities is a form of contract modification that does not result in any additional goods or services provided to the customer.

Required:

i. Why do you think that the delay is a contract modification?

ii. How should an entity account for this contract modification?

iii. Support your answer in (ii) with the provisions of IFRS 15.

See the suggested answers to practice activity 13.12 here.

Suggested answers to practice activity 13.12

i. Contract extension resulting from a customer’s delay that affects the contractor’s ability to commence construction activities is a form of contract modification. This change does not result in supplementary goods or services transferred to the customer. This is because there are no additional goods and services arising from the contract’s alteration. Therefore, post-modification goods or services are not different from those fulfilled at the contract modification date. The post-modification goods are already included in the single performance obligation that is partially satisfied at the contract modification date.

ii. An entity shall account for the contract modification as if it were a included in the existing contract. The transaction price and measure of progress towards complete satisfaction of the performance obligation are updated. The constraint on estimates of variable consideration is considered when estimating or updating the transaction price.

iii. This answer is based on the provisions of IFRS 15 concerning accounting for contract modification as if it were a part of the existing contract if the remaining goods or services are not different or they form part of a single performance obligation that is partially satisfied when the contract is modified.