On January 1, 20x1, Qwerty, Inc. entered into a construction contract with an owner to build an oil refinery. The oil refinery is highly customized to the owner’s specifications, and changes to these specifications by the owner are expected over the contract term. The oil refinery does not have an alternative use to the contractor. Nonrefundable, interim progress payments are required as a mechanism to finance the contract. The owner can cancel the contract at any time (with a termination penalty); any work in process is the property of the owner. As a result, another entity would not need to reperform the tasks performed to date. Physical possession and title do not pass until completion of the contract. The contractor determines that the contract has a single performance obligation to build the refinery. The preponderance of evidence suggests that the contractor’s performance creates an asset that the customer controls and control are being transferred over time. Qwerty, Inc. concludes that input method is a more reasonable method for measuring the progress toward satisfying its performance obligation. The contract duration is three (3) years with total estimated contract revenue of P30,000,000. The total estimated contract cost as of December 31, 20x1 is P20,000,000. The cost incurred during 20x1 is P12,000,000, including P2,000,000 related to contractor-caused inefficiencies which do not represent the transfer of goods or services to the customer. As of December 31, 20x2, the total estimated contract cost becomes P25,000,000 due to an increase in cost of raw materials. The cost incurred during 20x2 is P10,500,000 including P500,000 related to contractor-caused inefficiencies, which do not represent transfer of goods or services to the customer. REQUIRED: Under IFRS 15, determine the following: 7. Percentage of completion for 20x2 _____________ 8. Realized gross profit (loss) for 20x1 _____________ 9. Realized gross profit (loss) for 20x2 _____________ 10. Net income (loss) for the year ended Dec. 31, 20x2 _____________
On January 1, 20x1, Qwerty, Inc. entered into a construction contract with an owner to build an oil refinery. The oil refinery is highly customized to the owner’s specifications, and changes to these specifications by the owner are expected over the contract term. The oil refinery does not have an alternative use to the contractor. Nonrefundable, interim progress payments are required as a mechanism to finance the contract. The owner can cancel the contract at any time (with a termination penalty); any work in process is the property of the owner. As a result, another entity would not need to reperform the tasks performed to date. Physical possession and title do not pass until completion of the contract. The contractor determines that the contract has a single performance obligation to build the refinery. The preponderance of evidence suggests that the contractor’s performance creates an asset that the customer controls and control are being transferred over time. Qwerty, Inc. concludes that input method is a more reasonable method for measuring the progress toward satisfying its performance obligation.
The contract duration is three (3) years with total estimated contract revenue of P30,000,000. The total estimated contract cost as of December 31, 20x1 is P20,000,000. The cost incurred during 20x1 is P12,000,000, including P2,000,000 related to contractor-caused inefficiencies which do not represent the transfer of goods or services to the customer. As of December 31, 20x2, the total estimated contract cost becomes P25,000,000 due to an increase in cost of raw materials. The cost incurred during 20x2 is P10,500,000 including P500,000 related to contractor-caused inefficiencies, which do not represent transfer of goods or services to the customer.
REQUIRED: Under IFRS 15, determine the following:
7. Percentage of completion for 20x2 _____________
8. Realized gross profit (loss) for 20x1 _____________
9. Realized gross profit (loss) for 20x2 _____________
10. Net income (loss) for the year ended Dec. 31, 20x2 _____________
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