Recognition of Service Contract Revenues}

Jackson Duclos is president of New Moncton Maintenance Inc., which provides building maintenance services. On October 15, 2018, Jackson signed a service contract with Eastern College and Eastern made a down payment of \(\$ 12,000\). Under the contract, New Moncton will provide maintenance services for all of Eastern's buildings for a period of two years, beginning on January 1, 2019, and Eastern will pay New Moncton \$1,000 per month, beginning on January 31, 2019.

Initially, Jackson proposed that some portion of the revenue from the contract should be recognized in 2018; however, his accountant, Rita McGonigle, convinced him that this would be inappropriate. Then Jackson proposed that the revenue be recognized in an amount equal to the cash collected under the contract in 2018. Again, Rita argued against his proposal, saying that IFRS requires recognition of an equal amount of contract revenue each month.

\section*{Required:}

1. Give a reason that might explain Jackson's desire to recognize contract revenue earlier rather than later.

2. Put yourself in Rita's position. How would you convince Jackson that his two proposals are unacceptable and that an equal amount of revenue should be recognized every month?

3. If Rita's proposal is adopted, how would the contract be reflected on the statements of financial position at the end of 2018 and at the end of 2019?

\section*{Case