Page 191 - F2 Integrated Workbook STUDENT 2019
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Revenue from contracts with customers
Example 7.7
Larry enters into a contract with David to construct a building. Construction
started on 1 October 20X1. The contract price was agreed at $4 million. The
building has been designed especially for David and could not be sold to
another entity without significant modifications.
The terms of the contract specify that David must pay Larry within 30 days of
invoice. Invoices are sent at the end of each quarter. Larry measures progress
to completion in terms of the contract costs incurred as a proportion of total
estimated contract costs. Total contract costs are estimated at $2.5 million. If
David cancels the contract, then it is liable to pay Larry for the work completed.
By 31 December 20X1, Larry has incurred costs of $0.5 million on the contract.
The estimate of total contract costs remains unchanged.
Explain how Larry should account for the above in the year ended
31 December 20X1.
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