On 1 May 2018, Safe Structures Limited signed a contract with a customer to build a home for the elderly. The transaction price is ₦889,000. The contract is a single performance obligation. Safe Structures Limited measures progress in fulfilling the performance obligation arising from the contract by measuring costs to date as a proportion of total expected costs.
As at 30 April 2019, the costs incurred to date are estimated at ₦124,000. The estimated future costs to complete the contract are ₦412,000.
Safe Structures Limited is yet to recognise revenue from the contract. Calculate the amount of revenue that should be recognised in year one.
See the suggested solution to practice activity 13.32 here.
Suggested solution to practice activity 13.32
₦
Costs to date 124,000
Estimated future costs to contract completion 412,000
Total estimated costs 536,000
To determine the progress to contract completion, apply the following:
₦124,000 = y
₦536,000 = 100%
Make y the subject of the formula
12,400,000 = 536,000y
y = 12,400,000/536,000
y = 23.13%
Transaction price of contract is ₦889,000.
Therefore, revenue recognised as at 30 April 2019 is ₦889,000 * 23.13% = ₦205,625.70
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