Question
A ship builder sells ships with each ship selling for RM30 million. The company never starts building a ship until it receives a specific order
A ship builder sells ships with each ship selling for RM30 million. The company never starts building a ship until it receives a specific order from a customer. It takes three years to build a ship. Before the ship is constructed, the customer is required to pay a deposit of 20%. Once construction is completed and during the first three years of using the ship the company agrees to repair anything on the ship free of charge. The customer pays for the ship over a period of ten years after the date of delivery. Evaluate on each of the following alternatives AND determine which one is the most appropriate to recognize revenue from the sale of ships:
(i) Recognize revenue when an order is received (3 marks)
(ii) Recognize revenue when the deposit is received (3 marks)
(iii) Recognize revenue when construction work starts (3 marks)
(iv) Recognize revenue proportionately during the four-year construction period (3 marks)
(v) Recognize revenue immediately after the customer takes possession of the ship (3 marks)
(vi) Recognize revenue only after the three year guarantee period is over (3m)
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