The problem of how and when to account for revenue on long term contracts has been an issue for many years. Evaluate the approach taken by IFRS 15 (Revenue from Contracts with Customers) to permit revenue to be recognised over time on a contract.

Zulfar Holdings Ltd is a construction company that specialises in building electricity generating stations powered by wind turbines. In April 2021, Zulfar Holdings Ltd won new contracts to build an electrity generation station in Fiji and a very large wind farm instllation in Australia, both contracts meet the criteria for performance conditions to be met over time.

Fiji Contract

The contract was for a total value of $125 Million. The OUTPUT method is to be used for calculating contract revenue, with the value of work performed being determined by qualified architects. The building work has unfortunately had a number of problems. You are given the following information regarding the performance of the contract at 31 March 2022 and 2023.

	31 MARCH 2020 ($'000)	31 MARCH 2023 ($'000)
certified level and revenue	48000	118000
costs incurred to date	52000	126500
estimated costs to complete	83000	9000
cumulative progress billings	42000	117000

Australia contract

This division won a contract for $150 Million to build a new road and rail bridge. The INPUT method is to be used for calculating contract revenue. You are given the following information regarding the contract at 31/12/19 and 31/12/20.

	31 MARCH 2022 ($'000)	31 MARCH 2023 ($'000)
costs incurred to date	52000	98250
estimated costs to complete	78000	32750
cumulative progress billings	58000	110000

Required:

b. Calculate the revenue, profit and statement of financial position balance for the Fiji contract for the years ending 31 March 2022 and 2023.

c. Calculate the revenue, profit and statement of financial position balance for the Australia contract for the years ending 31 March 2022 and 2023.