Financial Reporting

Q10.

WWW is a renowned construction company in Kuala Lumpur. In conjunction with the business expansion, L& L Berhad intends to build an extra building to accommodate the newly hired administrative staff. L & L Berhad appointed Encik Hussein to be the project manager to oversee this construction project and he recommended WWW to build this building. Both companies entered into a contract and the contract price for this project is RM12 million and the duration for this construction will take 3 years to complete. The project began in the 2018 and expected to complete in 2020. It is WWWs accounting policy to recognise profit based on cost incurred to total estimated cost. The following table shows the position of the contract at the end of the year 2018, 2019 and 2020:

2018 2019 2020

RM000 RM000 RM000

Increase variation to contract price 1,600

Cumulative cost incurred to date 3,780 7,200 12,400

Estimated cost to complete 8,620 4,800 NIL

Progress billings for the year 3,200 4,400 4,400

Cash received during the year 2,000 3,000 5,000

Required:

(a) Prepare extracts of statements of profit and loss of WWW, showing complete calculation of revenues recognised, costs recognised and profits/(loss) for 2018, 2019 and 2020. (8 m)

(b) Prepare extracts of statements of financial position of WWW, showing the contract asset or contract liability, and accounts receivable for 2018, 2019 and 2020.(8 m)

(c) Justify the need of a provision for employee benefits using Two (2) accounting concepts. (4 m)