Question 1 100 marks Josephs Construction Ltd owned a contract to build a library. The library was scheduled for completion by 1 December 2018. One term of the contract stated that Josephs Construction Ltd was to deduct 22,600 from the 13,500,000 total contract value for each week that completion was delayed. Completion was delayed by five weeks, which resulted in a 113,000 penalty. Josephs Construction Ltd can reliably estimate the outcome of the contract only when a contract is at least 50% complete. Below are the data related to the costs, billings and cash receipts: thousands 2016 3,375 2017 7,245 2018 10,350 Cumulative costs incurred to date 6,750 3,105 Cost to be incurred (estimated at year-end) 2,250 5,625 13,388 Cumulative billings invoiced 1,800 5,175 13,388 Cumulative billings received Required: a. Calculate overall profit or loss on the contract estimated at the end of each year. (10 marks) b. Calculate the contract's annual revenue, cost of sales and profit or loss recognized in the Income Statement for each year, using the percentage of completion method where appropriate. (20 marks) c. Show the accounting entries for each year assuming costs incurred are paid in cash. (15 marks) d. Show the Balance Sheet amounts for Accounts receivable and Contract-in-progress at the end of each year. Explain what the outstanding balance on the "Contract-in- progress" account indicates. (25 marks) e. Accounting standards (IAS 11) allow companies to recognize profit before a construction contract is completed. Discuss the rationale behind this accounting treatment and why the requirements of accounting standards for inventories are not applicable to construction contracts. (30 marks)