Rashid owns a small construction company and saw an advertisement for call to bid for construction of a bridge in the weekend newspaper. Rashid makes the following notes related the project

- The bids have to be submitted in the next 30 days and should be sealed - The construction authority controls the area of the construction and the bridge throughout the life of the project. - Rashid estimates to earn Rs 320 million from the contract - The construction will take 2 years Rashid wins the project

REQUIRED a) Rashid has never won a project of this size and does not know how to recognize revenue in his books. Guide Rashid.

b) The first year of construction, Rashids notes show the following amounts

Materials, labour and overheads Rs 120 million Machinery Rs 80 million Estimated cost to complete Rs 90 million Work invoiced to date Rs 60 million Cash received Rs 40 million

The machinery has no residual value at the end of the project and has a useful life of 2 years.

REQUIRED

i) Show the amounts related to the project in the Statement of Profit or Loss and Statement of Financial Position as the end of year 1.

ii) If in year 2 Rashids expected cost to complete is Rs 122 million how will that be treated. No need for calculation just explain

c) Rashid decides to construct a proper office space for his expanding company. The construction for the office will take 15 months. Since his construction team is busy Rashid decides to engage another construction company to do the job and he uses funds from his existing bank loans. The following details are related to the construction of office space.

Construction began 1st January 2019 Year end is 31st December Payments made for construction of office space

1st March Rs 3 million 1st Aug Rs 4 million 1st Dec Rs 5 million

Existing loans 10% bank loan amount Rs 20 million 8% bank loan amount Rs 30 million

REQUIRED Explain what qualifying asset means and how Rashid should treat the interest incurred related to the construction of his office space? Show your working clearly