Solution in good accounting form. On January 1, 2031, Megaland Inc. entered into a construction contract with an owner to build an oilrefinery. The contract has the following characteristics. The oil refinery is highly customized to theowner's specifications and changes to these specifications by the owner are expected over the contractterm. The oil refinery does not have an alternative use to the contractor. Non-refundable, interimprogress payments are required as a mechanism to finance the contract. The owner can cancel thecontract at any time (with a termination penalty); any work in process is the property of the owner. As aresult, another entity would not need to reperform the tasks performed to date. Physical possession andtitle do not pass until completion of the contract. The contractor determines that the contract has asingle performance obligation to build the refinery. The preponderance of evidence suggests that thecontractor's performance creates an asset that the customer controls and control is being transferredover time. Megaland Inc. concludes that input method (cost-to-cost method) instead of output method isa more reasonable method for measuring the progress toward satisfying its performance obligation.The contract duration is 3 years with total estimated contract revenue of P300M. The total estimatedcontract cost as of December 31, 2031 is P200M. The cost incurred during year 2031 is P120Mincluding P20M related to contractor-caused inefficiencies, which do not represent/depict the transfer ofgoods or services to the customer. As of December 31, 2032, the total estimated contract cost becomesP250M due to increase in cost of raw materials. The cost incurred during year 2032 is P105M includingP5M related to contractor-caused inefficiencies, which do not represent/depict the transfer of goods orservices to the customer.Under IFRS 15, what is the net income/(net loss) to be reported by Megaland Inc. for the yearsended December 31, 2031 and 2032, respectively?a. 30M and (15M)b. 50M and (10M)c. 60M and (15M)d. 40M and (5M)

Solution: Percentage of completion Cost Incurred in 2031 & 2032 (excluding inefficiencies)= 100…

specifications and changes to these specifi ne oil refinery does not have an alternati s payments are required as a mechanism at any time (with a termination penalty); an nother entity would not need to reperform th not pass until completion of the contract. erformance obligation to build the refinery. or's performance creates an asset that the e. Megaland Inc. concludes that input methe easonable method for measuring the progre tract duration is 3 years with total estimate cost as of December 31, 2031 is P2001 3 P20M related to contractor-caused ineffici i services to the customer. As of December due to increase in cost of raw materials. The ated to contractor-caused inefficiencies, wh to the customer.

specifications and changes to these specifi ne oil refinery does not have an alternati s payments are required as a mechanism at any time (with a termination penalty); an nother entity would not need to reperform th not pass until completion of the contract. erformance obligation to build the refinery. or's performance creates an asset that the e. Megaland Inc. concludes that input methe easonable method for measuring the progre tract duration is 3 years with total estimate cost as of December 31, 2031 is P2001 3 P20M related to contractor-caused ineffici i services to the customer. As of December due to increase in cost of raw materials. The ated to contractor-caused inefficiencies, wh to the customer.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Make logical comparison between financial accounting with other fields of accounting ?
Describe briefly the following characteristics of useful accounting information. Comparability (consistency). Neutrality.
Explain the importance of accounting information for internal parties—primarily management—in terms of the objectives and the characteristics of that information.
Explain the model business coporation act.
a critical evaluation of the accounting function in informing social needs and expectations
Define lean accounting.
The relevance of providing information in financial statements is subject to the constraint of a.Faithful representation b.Cost-benefit c.Comparability d.Reliability
Discuss the meaning and needs of accounting standards.
What two primary qualitative characteristics make accounting information useful? Predictive value and relevance. Relevance and neutrality. Faithful representation and relevance. Faithful representation and predictive value.
Explain differential effects on accounting standards.
1. What STRATEGIC MANAGEMENT? 2. What STRATEGIC MANAGEMENT accounting?
define the concept of research methodology in the context of accounting theory.