QUESTION 1

Starship plc specialises in the construction of retail shopping centres. This construction work is always based upon detailed customer specifications, and usually involves a fixed-price construction contract extending beyond one year. At 31 December 2022, Starship plc has three fixed price construction contracts in progress, the salient details of which are as follows:

Contract 1 Contract 2 Contract 3

Agreed contract start date 1 July

2022 1 June

2022 1 November

2022

Agreed contract completion date 31 March

2024 31 December

2023 30 November

2024

000 000 000

Direct costs to date (incurred and paid) 3,760 4,180 3,380

Cost of work completed 3,560 3,941 591

Additional direct costs to completion 10,480 7,080 8,440

Fixed contract price 14,020 21,000 13,380

Progress payments (invoiced and received) 3,760 5,280 2,120

Additional Information

Each contract is considered to contain one performance obligation that will be satisfied over time and the cost of work completed shown above has been certified by independent experts. Whilst Starship plc deems that an input method that uses the percentage of completion based on the cost of work completed as a proportion of total estimated costs appropriately predicts performance under each contract, it is believed that the outcome of each contract can only be estimated reliably once it has reached a minimum of 15% completion.

A loss-making contract can be deemed onerous in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, with the loss reflecting the least net cost of exiting from the contract.

Requirement

Show how each of the three contracts will appear in the statement of profit or loss and other comprehensive income for the year ended 31 December 2022 and in the statement of financial position at that date in accordance with IFRS 15 Revenue from Contracts with Customers.

Q1

With respect to Contract 3, what is the profit or loss recognised in the statement of profit or loss and other comprehensive for the year ened 31 December 2022?

Group of answer choices

591,000 loss

1,529,000

nil

591,000 profit

Q2

With respect to Contract 1, what is the provison for an onerous contract at 31 December 2022?

Group of answer choices

nil

20,000

220,000

165,000