Rajah Construction entered into a fixed-price contract with Fajar Developers on January 2, 2018 to build a low-rise residential apartment for $15,000,000. The construction is expected to be completed by 2020.

Rajah seeks your help to identify the costs that qualify as “contract costs” under IFRS 15. In particular, the company isn’t clear what qualifies as “incremental costs of obtaining a contract” and “fulfillment costs.” Rajah intends to recognize the incremental costs as deferred costs which is amortized over the period of the contract. The table below shows the expenditures incurred by Rajah in 2018, 2019, and 2020.

	2018				2019				2020
Design and architectural costs	$	800,000			$	24,000			$	—
Sales commissions to procure contract		100,000				—				—
Direct materials		1,200,000				2,300,000				2,600,000
Direct labor and overheads		390,000				420,000				520,000
Construction-related insurance		90,000				90,000				90,000
Construction site office costs		120,000				145,000				140,000
Depreciation of construction equipment		520,000				520,000				520,000
Subcontractor costs		900,000				1,450,000				230,000
General and administration costs		690,000				720,000				760,000
Interest on loans to finance construction		30,000				40,000				35,000
Interest on other loans		56,000				60,000				60,000

Rajah provides additional information below relating to estimated costs to complete at year-end, billings, and cash collections during the life of the contract.

	2018				2019				2020
Estimated costs to complete as of year-end	$	8,900,000			$	2,050,000			$	—
Billings made during the year		4,000,000				4,200,000				6,800,000
Cash collections during the year		3,200,000				4,800,000				6,000,000

Required:

1. Identify the costs that qualify as “fulfilment costs” and calculate the current fulfilment costs for 2018, 2019, and 2020 and the cumulative fulfilment costs at the end of each of the three periods.
2. Using fulfilment costs as a measure of the extent to which performance obligations are satisfied over time, what is the percentage of completion at the end of 2018, 2019, and 2020?
3. How much revenue related to this contract will Rajah report in its 2018, 2019, and 2020 income statements?
4. What is the amount of contract profit or loss to be recognized for the Fajar contract during 2018, 2019, and 2020 income statements?
5. Prepare all necessary journal entries for each of the years (credit “other net assets” for contract costs incurred). Include entries for incremental costs.
6. Prepare a partial income statement to show the revenue and expenses arising from this contract in 2018, 2019, and 2020.
7. Prepare a partial statement of financial position at the end of 2018, 2019, and 2020 to show the items related to the contract, stating clearly contract asset or contract liability or accounts receivable. Also show “other net assets” (which includes cash) and accumulated retained earnings to provide the balancing effect.