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.

Q1

What is the estimated overall profit or loss arising on Contract 1 at 31 December 2022?

Group of answer choices

14,020,000 profit

220,000 profit

220,000 loss

20,000 loss

Q2

What is the estimated overall profit or loss arising on Contract 2 at 31 December 2022?

Group of answer choices

9,740,000 profit

9,740,000 loss

5,280,000 profit

21,000,000 profit