Question 5 Anjali Plc has three construction contracts underway - contract red, contract blue and contract green. Contract red and contract blue started on 1 January 2019 and contract green started on 1 September 2019. The positon on each contract at 31 December 2019 is as follows: Contract red Contract blue Contract green '000 '000 '000 Contract price 4,000 2,000 3,000 Cost of work recognised (certified) 2,550 300 2,200 Cost carried forward 150 80 100 Value of work recognised (certified) 3,000 400 2,000 Estimated additional costs to completion 700 1,100 1,300 Progress billings (payments on account) 3,200 360 1,800 Contract red provided for the sum of 250,000 to be paid in advance by the client on 1 January 2019 and this is included in the payments on account figure. The cost of work certified represents costs incurred in reaching the stage of completion represented by the value of work certified. The costs carried forward represents costs incurred subsequently but before the year end Anjali Plc's accounting policy recognises no profit until a contract is 1/3 complete by value. Thereafter, Anjali Plc recognises a proportion of total expected profit each year. This is measured as the difference between turnover for the year and cost of sales. Cumulative turnover is calculated as the value of work certified except where the contract is not 1/3 complete by value in which case turnover is recorded at an amount equal to the cost of sales. Required: (a) What is a construction contract and why are they accounted for differently to other forms of inventory? To what extent has IFRS 15 changed accounting for construction contracts? (6 marks) (b) How should construction contracts be accounted for when the outcome of the contract cannot be estimated reliably? the questions --- (2 marks) (c) Show how contracts red, blue and green will be recorded in the financial statements of Anjali Plc in 2019. (12 marks)