ABC Co., a private contractor, wins a bid to construct an expressway for a provincial government, under the following terms: D. The construction shall be finished within 2 years and the company shall operate and maintain the expressway for 8 years after the completion of the construction. E. The provincial government shall pay ABC Co. the amount of P20,000,000 per year for 8 years starting year 3. The provincial government reserves its rights to collect tolls
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- Hermes Co., a private company, enters into a service concession arrangement whereby Hermes undertakes to build an airport for the government with a completion period of two (2) years, operate and maintain the airport for eight (8) years after completion, and transfer the airport to the government at the end of Year 10. In exchange, the government pays Hermes Co. 2. P300 million per year in years 3 to 10. Hermes Co. makes the following estimates at the contract inception: Year Contract costs Stand-alone Selling Price Construction service 1 P400 million Forecast cost + 30% 2 P400 million Forecast cost + 30% Operation services 3-10 P10 million Forecast cost + 10% Compute for: a. Total transaction price b. Carrying amount of the asset recognized on the contract at the end of year 3 c. interest income over the term of the contractRainy August Afternoon Co. (RAA) enters into a service concession arrangement whereby RAA undertakes to build a public infrastructure, operate that infrastructure over a specified period, and thereafter transfer it to the government (the grantor). In addition, RAA is obligated to recondition the infrastructure a year before it is handed over to the government. This is regardless of the infrastructure’s condition and level of usage. In return, the government promises to pay RAA a fixed amount of cash plus interest in each year during the operation period. During the construction period, RAA recognizes an asset that is reported in the financial statements as a. contract asset. b. receivable (a financial asset). c. intangible asset. d. property, plant and equipment. If the promise to grant a license is distinct and that the license provides the customer the “right to access” the entity’s intellectual property, how is revenue recognized from the initial fee in the contract? a. in full…ABC Co. a private contractor, wins a bid to construct a railway for the government. The terms of the arrangement are as follows: Construct a road- completing construction within a year; Maintain and operate the road for four years. Resurface the road when the original surface has deteriorated below specified condition. The operator estimates that it will have to undertake the resurfacing at the end of year 3. The operator collects toll fees of P200,000 per year. The contract ends in year 5. The operator estimates that the resurfacing expenditure increases by P5,000 for each year that the road is used. The appropriate discount rate is 10%. At contract inception, ABC Co. identifies a single performance obligation for construction services. ABC Co. makes the following estimates: YEAR CONTRACT COST STAND ALONE SELLING PRICE CONSTRUCTION SERVICE 1 200,000 FORECAST COST + 25% OPERATION SERVICE 2-5 15,000 N/A ROAD RESURFACE 3 10,000 N/A At the start of year 1, ABC Co. obtains…
- Rainy August Afternoon Co. (RAA) enters into a service concession arrangement whereby RAA undertakes to build a public infrastructure, operate that infrastructure over a specified period, and thereafter transfer it to the government (the grantor). In addition, RAA is obligated to recondition the infrastructure a year before it is handed over to the government. This is regardless of the infrastructure’s condition and level of usage. In return, the government promises to pay RAA a fixed amount of cash plus interest in each year during the operation period. During the construction period, RAA recognizes an asset that is reported in the financial statements as contract asset. receivable (a financial asset). intangible asset. property, plant and equipment.The terms of the arrangement require the operator to: Construct a road-completing construction within two years Maintain and operate the road for three years Resurface the road at the end of Year 4 The government pays the operator P200 per year in Years 3 to 5 for making the road available to the public The road is turn-over to the government at the end of Year 5 The operators determine that the implied interest rate is 24.42%. The operator finances the arrangement entirely with debt. The debt proceeds are taken as the contract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year 5. The effective interest rate is 25.77% The operator makes the following estimates: Contract Cost Stand-alone selling price Forecast cost +10% Forecast cost +20% Forecast cost +30% Forecast cost +10% Year Construction Services 70 1 2 80 Operation Services Road resurfacing 3-5 25 4 15 TAM Compute for the profit for year 2.Industrial Development Corporation (IDC) granted Naseer Pty(Ltd) R20 000 on 01 January 2021 to assist in thepurchase of a manufacturing plant.The grant was conditional upon Naseer Pty(Ltd) purchasing the plant and manufacturing for a period of atleast two unbroken years. If the conditions of the grant were not met, the terms of the grant required that thegrant be repaid in full, immediately.The plant was purchased on 3rd January 2021 for R200 000 and was depreciated on the straight-line basisover its useful life of 4 years to a nil residual value.Other information:- Naseer ceased manufacturing on 31 March 2022 due to unforeseen circumstances.- The asset was not considered to be impaired and Naseer intended to resume manufacturing on thenext year. - Ignore the effect of tax and VAT.- Assume that Naseer Pty(Ltd) recognises grants as grant income.- The year end is 31 December Required:a) Show the journal entries relating to the grant for the year ended 31 December 2021 and up until…
- The terms of the arrangement require the operator to: Construct a road-completing construction within two years Maintain and operate the road for three years Resurface the road at the end of Year 4 The government pays the operator P200 per year in Years 3 to 5 for making the road available to the public The road is turn-over to the government at the end of Year 5 The operators determine that the implied interest rate is 24.42%. The operator finances the arrangement entirely with debt. The debt proceeds are taken as the contract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year 5. The effective interest rate is 25.77% The operator makes the following estimates: Year Contract Cost Stand-alone selling price Construction Service 1 70 Forecast cost + 10% 2 80 Forecast cost + 20% Operation Services 3-5 25 Forecast cost + 30% Road resurfacing 4 15 Forecast cost + 10% Compute for the profit for…Colorado Construction Co., a private company that reports under ASPE, was contracted by a provincial government to build a bridge over a river. The government owns the land on both sides of the river and it agreed to pay Colorado a fixed fee of $29,750,000 for the bridge. Colorado initially estimated the cost to build the bridge to be $21,500,000. Colorado's year end is December 31. Work began under the contract on July 1, 2019 and was completed on September 30, 2021. Construction activities are summarized below by year: Estimated costs to Amount during the year collected during the year Year Construction costs Progress billings incurred during the year complete (excludes already incurred costs 2019 $8,250,000 $13,000,000 $10,000,000 $12,000,000 2020 12,000,000 5,000,000 10,000,000 6,000,000 2021 5,250,000 9,750,000 11,750,000 Required: a. Provide the journal entries that Colorado would have to record for each year of the bridge contract. Use costs to determine the percentage of…The terms of the arrangement require the operator to: Construct a road-completing construction within two years Maintain and operate the road for three years Resurface the road at the end of Year 4 The government pays the operator P200 per year in Years 3 to 5 for making the road available to the public The road is turn-over to the government at the end of Year 5 The operators determine that the implied interest rate is 24.42%. The operator finances the arrangement entirely with debt. The debt proceeds are taken as the contract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year 5. The effective interest rate is 25.77% The operator makes the following estimates: Year Contract Cost Stand-alone selling price Construction Services 1 70 Forecast cost +10% 2 80 Forecast cost +20% Operation Services Road resurfacing 3-5 25 Forecast cost +30% 4 15 Forecast cost +10% Compute for the profit for year 2.
- The terms of the arrangement require the operator to: Construct a road-completing construction within two years Maintain and operate the road for three years Resurface the road at the end of Year 4 The government pays the operator P200 per year in Years 3 to 5 for making the road available to the public The road is turn-over to the government at the end of Year 5 The operators determine that the implied interest rate is 24.42%. The operator finances the arrangement entirely with debt. The debt proceeds are taken as the contract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year 5. The effective interest rate is 25.77% The operator makes the following estimates: Stand-alone selling price Forecast cost +10% Year Contract Cost Construction Services 70 80 Forecast cost +20% Operation Services Road resurfacing Forecast cost +30% Forecast cost +10% 35 25 4 15 Compute for the profit for year 2.The terms of the arrangement require the operator to: Construct a road-completing construction within two years Maintain and operate the road for three years Resurface the road at the end of Year 4 The government pays the operator P200 per year in Years 3 to 5 for making the road available to the public The road is turn-over to the government at the end of Year 5 The operators determine that the implied interest rate is 24.42%. The operator finances the arrangement entirely with debt. The debt proceeds are taken as the contract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year 5. The effective interest rate is 25.77% The operator makes the following estimates: Stand-alone selling price Forecast cost +10% Forecast cost +20% Forecast cost +30% Forecast cost +10% Year Contract Cost Construction Services 70 2 80 Operation Services Road resurfacing 25 15 35 4. Compute for the carrying amount of intangible asset at the end of year 2.The terms of the arrangement require the operator to: Construct a road-completing construction within 2 years Maintain and operate the road for 3 years Resurface the road at the end of Year 4 The government pays the operator P200 per year in Years 3 to 5 for making the road available to the public The road is turnover to the government at the end of Year 5 The operators determine that the implied interest rate is 24.42% The operator finances the arrangement entirely with debt. The debt proceeds are taken as the contract cost are paid. The debt is payable as follows: P75 in each Years of 3 and 4 and P40 in Year 5. The effective interest rate is 25.77% The operator makes the following estimates: YEAR CONSTRUCTION COST STAND-ALONE SELLING PRICE Forecast cost +10% Construction Services 1 70 80 Forecast cost +20% Operation Services Road Resurfacing Compute for the profit for Year 2. 3-5 4 25 Forecast cost +30% 15 Forecast cost +10% (With two decimal places for the final answer)