Question
Cassowary PTY is a mid-sized Australian-based firm that builds causeways and bridges. The nature of the building sites often involves a lot of heavy preparation
Cassowary PTY is a mid-sized Australian-based firm that builds causeways and bridges. The nature of the building sites often involves a lot of heavy preparation (e.g. digging and clearing of mud and loose stones to expose solid rock) and the building of casements and/or seawalls. As a result, its jobs often take well over three years to complete. Also, given the relatively small size of the firm, it can only take on one or two large jobs ($50-600 million) at any given time. Currently, Cassowary PTY is starting a new job where the project payment of $570 million USD is shared equally, jointly and severally guaranteed by the Indian and the Sri Lankan governments. The project is to build a causeway and bridge to link Rameshwaram (Tamil Nadu, India) with Mannar Island (Mannar District, Sri Lanka). The job, which will mostly use local labour and materials, it is expected to take three years to complete. Payment is to be in three equal progress payments starting 01 December, 2015. Table 4-1: Rebuilding of Ramas Setubandhanam Project (amounts in $ ,000 USD)
Required: a) The President and owner wants to recognize the revenue evenly over the three years is his approach true and fair? (Explain and if needed give an alternative approach). b) Using the information in Table 4-1 (above) please make the appropriate journal entries for the Rebuilding of Ramas Setubandhanam Project for 31 December, 2016.
Item/Description 31Dec/15 31 Dec/16 31 Dec/17 Contract Price Progress Payment S570,000 $570,000$570,000 $190,000 $190,000$190,000 66.67% 100.0% Less: Estimated Costs to date $60,000$350,000$456,000 0D 456,000$456,000 Estimated Total Gross Profit/(loss)$114,000 $114,000 $114,000 Estimated Cost Estimated Total Costs 396,000 % of Project Costs Complete 13.16% 76.75% 100.00% Item/Description 31Dec/15 31 Dec/16 31 Dec/17 Contract Price Progress Payment S570,000 $570,000$570,000 $190,000 $190,000$190,000 66.67% 100.0% Less: Estimated Costs to date $60,000$350,000$456,000 0D 456,000$456,000 Estimated Total Gross Profit/(loss)$114,000 $114,000 $114,000 Estimated Cost Estimated Total Costs 396,000 % of Project Costs Complete 13.16% 76.75% 100.00%Step by Step Solution
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