QUESTION 2 [27 marks] Amar Ltd is a construction company that prepares its financial statements to 31 March each year. During the year ended 31 March 2020 the company commenced three construction contracts that are expected to take more than one year to complete. The position of each contract at 31 March 2020 is as follows: CONTRACTS Agreed Contract Price Cost incurred to date (at 31 March 2020) Cost to completion Agreed value of work completed at 31 March 2020 Progress billing invoiced at 31 March 2020 Cash received ALPHA SOOO 5.500 1,900 2,800 1,100 0 0 BETA CETA S000 5000 1.200 3,600 720 2,700 180 1.200 840 1.440 880 1.200 600 960 The agreed value of the work completed at 31 March 2020 is considered to be equal to the revenue cared in the year ended 31 March 2020. The percentage of completion is calculated as the agreed value of work completed to the agreed contract price. The company considers that the outcome of a contract cannot be estimated reliably until a contract is 40% complete. It is, however, probable that the customer will pay for costs incurred so far. REQUIRED: a) Calculate the amounts which should appear in the income statement and statement of financial position of Amar Limited at 31 March 2020 in respect of the above contracts. (24 marks) b) Explain what is rectification cost and how it should be accounted for in contract accounts