Chapter 5, Problem 5.12P

Requirement – 1

To determine

Contract:

Contract is a written document that creates legal agreement between the parties for buying and selling the property. It is committed by the parties to perform their obligation and to enforce their rights.

Revenue recognized point of long term contract:

A long-term contract qualifies for revenue recognition over time. The seller can recognize the revenue as per percentage of the completion of the project, which is recognized by revenue minus cost of completion until date.

If a contract does not meet the performance obligation norm, then the seller cannot recognize the revenue till the project is complete.

The revenue recognition principle:

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed.

To prepare: A schedule to compute total gross profit or loss to be recognized as a result of this contract.

Requirement – 2

To determine

To compute: The amount of gross profit or loss to be recognized in each of the three year.

Requirement – 3

To determine

To compute: The amount to be shown in the balance sheet at the end of 2016 and 2017.