On 1 July 2016, a contractor signs a contract with a customer to build a power generating plant and a security house for ₦98,900. The entity can invoice the ₦98,900 on 31 July 2016. The power generating plant is to be delivered on 30 November 2016. The security house is to be completed on 31 October 2016.
The contract includes separate promises to transfer the power generating plant and a security house. This implies that the promises are separate performance obligations. ₦88,900 is allocated to the power generating plant and ₦10,000 is allocated to the security house. The entity recognises revenue after transferring the control of each promised good to the customer.
Required: Show the relevant entries necessary to reflect the contract’s progress.
See the suggested solution to practice activity 13.42 here.
Suggested solution to practice activity 13.42
On 31 July 2016, the entity can invoice the ₦98,900.
Debit Credit
₦ ₦
Receivable 98,900
Contract liability 98,900
On 31 October 2016 the entity transfers the security house to the customer:
Debit Credit
₦ ₦
Contract liability 10,000
Revenue 10,000
On 30 November 2016 the entity transfers the power generating plant to the customer:
Debit Credit
₦ ₦
Contract liability 88,900
Revenue 88,900
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