knoll Task $1(12$ marks$)$

Architex Limited $($Architex$)$ is a construction company that manages commercial projects. Under the terms of its

contracts, Architex has an enforceable right to payment for performance completed to date. In addition, the client does

not have the right to terminate the contract unless Architex fails to perform as promised.

On $1$ November $2023$ Architex entered into a contract with Kura Secondary School $($Kura$)$ to design and construct a

new performing arts centre $($Stage $1)$ and upgrade the existing gymnasium $($Stage $2).$ The total contract price is

$$7$ million. The agreed contract terms include the following:

Completion of the design and plan for the project by $15$ January $2024.$

The final design is to be delivered to and approved by Kura, which is permitted to use the project design to contract

different builders to construct both stages of the project.

Architex and Kura have agreed the following project and instalment timeline, if Kura accepts the design and agrees to

proceed with Architex for construction of both stages:

Architex estimates the stand$-$alone selling price by using an expected cost plus a margin approach. Architex has the

following budgeted costs and mark$-$ups in relation to the Kura contract:Additional information

On $1$ November $2023,$ Kura paid $$80,000$ to Architex.

On $15$ January $2024$:

The design and plan were completed. Kura approved the design and plan, and it agreed to proceed with

Architex for construction of both stages.

Stage $1$ construction commenced and is expected to be completed by $30$ September $2024.$ Once Stage $1$ is

complete, Kura has the right to occupy and use the new performing arts centre.

Kura paid $$1,020,000$ to Architex.

On $30$ June $2024,$ Kura paid the progress payment of $$4$ million.

Architex uses an input method based on the budgeted costs to measure how much it has satisfied its performance

obligations. Architex estimates it has incurred costs to $30$ June $2024$ equal to $70\%$ of the total Stage $1$ budgeted

construction costs. No costs have been incurred by $30$ June $2024$ in relation to Stage $2.$

The tax rate is $30\%.$

Required

$($a$)$ Prepare the journal entries in relation to recognising the revenue for the Kura contract for the

year ended $30$ June $2024$ for Architex Limited. Show your workings. Ignore the impact of tax.

$($b$)$ Assume that at $30$ June $2024,$ Architex has a contract liability of $$1$ million on its statement of

financial position in relation to several ongoing construction jobs, including its contract with Kura.

For tax purposes, Architex's revenue is assessable when received in cash.

Calculate and identify the temporary difference in relation to the contract liability as at $30$ June $2024.$