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 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:

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 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:

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 2 years
Maintain and operate the road for 3 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:
Construction cost Stand-alone selling price
Forecast cost +10%
Forecast cost +20%
Forecast cost +30%
Forecast cost +10%
Construction Services
Year
1
70
80
|Operation Services
Road Resurfacing
3-5
4
25
15
Compute the carrying amount of intangible asset at the end of Year 2.

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