The terms of the arrangement require the operator to:Construct a road-completing construction within two yearsMaintain and operate the road for three yearsResurface the road when the original surface has deteriorated below a specified condition. Theoperator estimates that it will have to undertake the resurfacing at the end of year 4.The government grants the operator the right to collect toll fees from road users.The contract ends in year 5.The operator makes the following estimates:YearContract CostStand-alone selling priceConstruction Services170Forecast cost +10%280Forecast cost +20%Operation ServicesRoad resurfacing3-525Forecast cost +30%415Forecast cost +10%Compute the carrying amount of intangible asset at the end of year 2.

Carrying amount: Carrying amount is the amount which is computed after deducting accumulated…

ms of the arrangement require the operato Construct a road-completing construction v Maintain and operate the road for three ye Resurface the road when the original surfa operator estimates that it will have to unde The government grants the operator the rig The contract ends in year 5.

ms of the arrangement require the operato Construct a road-completing construction v Maintain and operate the road for three ye Resurface the road when the original surfa operator estimates that it will have to unde The government grants the operator the rig The contract ends in year 5.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required for the completion of the contract which takes different accounting periods. Thus, it is very much helpful for recognizing the costs associated with it and accounting in their specific accounting periods.

Question

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 when the original surface has deteriorated below a specified condition. The
operator estimates that it will have to undertake the resurfacing at the end of year 4.
The government grants the operator the right to collect toll fees from road users.
The contract ends in year 5.
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 the carrying amount of intangible asset at the end of year 2.

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