On 1 July, 2016, an entity signs a three-year contract with a customer to construct a power generating plant. The contract is a single performance obligation fulfilled over time for three years. The contractor recognises revenue on a time basis.
Costs incurred by 30 June 2017, and estimated future costs are given below:
Costs incurred by 30 June 2017 ₦24,100
Estimated future costs ₦42,200
Required: How should the entity recognise costs in its statement of profit or loss?
See the suggested solution to practice activity 13.38 here.
Suggested solution to practice activity 13.38
Revenue is recognised on a time basis. Therefore, costs should be recognised on a time basis in the profit or loss account.
The measurement of cost recognised in the profit or loss account for the period ended 30 June 2017 is one-third of the total expected cost (that is, ₦666,300) is ₦22,100. This is the amount of cost that should be recognised by 30 June 2018 and 30 June 2019 respectively.
Comments