IFRS 15 – QUESTIONS (1)

QUESTION NO. 1
Financial statements of Parodia Motors Limited (PML) for the year ended 30 June 2021 are under preparation. While
reviewing revenues from contract with customers, following matters have been identified:
(i) On 1 November 2020, PML sold Car-A to Alpha Limited (AL) for Rs. 5 million. As per the contract, Rs. 1 million would
be paid immediately and the balance would be paid after 2 years. The accountant has recognized revenue to the
extent of the cost of Car-A i.e. Rs. 3.5 million and remaining revenue would be recognized upon receipt of balance
from AL.
(ii) On 1 January 2021, PML entered into six months’ contract with Beta Limited (BL) to sell Car-B for Rs. 3.5 million per
unit. As per the contract, if BL purchases more than 10 units during the contract period, the price will be
retrospectively reduced to Rs. 3.4 million per unit. At the inception of the contract, PML concluded that BL will
meet the threshold for the discount. BL purchased 11th unit of Car-B on 28 June 2021 for which no revenue has
been recorded. BL has made payments of all units except 11th unit which will be settled in July 2021.
(iii) On 1 February 2021, PML sold Car-C to Gamma Limited (GL) for Rs. 3 million and recognized the entire amount as
revenue. PML also provided GL a Rs. 0.2 million discount voucher for any future purchases of spare parts within one
year. There is 80% likelihood that GL will redeem the discount voucher and will purchase spare parts within one
year. By the end of the year, no spare parts were purchased by GL. PML normally sells Car-C for Rs. 3 million with
no discount voucher.
(iv) On 20 February 2021, PML sold Car-D to Delta Limited (DL) with one-year free maintenance services at a lumpsum
payment of Rs. 3.6 million. Payment was made on 1 March 2021 upon delivery of Car-D to DL. The revenue of Rs.
1.2 million (i.e. 4/12 of Rs. 3.6 million) has been recognized. PML normally sells Car-D and annual maintenance
services separately for Rs. 3.5 million and Rs. 0.3 million respectively.

Discount rate of 12% per annum may be used wherever required.

Required:
Prepare correcting entries for the year ended 30 June 2021 in accordance with IFRS 15 ‘Revenue from Contracts with
Customers’. (16)
[Q-5, Aut-21]

QUESTION NO. 2
On 1 January 2021, Covaxin Telecom (CT) announced a new annual promotional package for its customers. The package
comprises of a mobile phone, full year unlimited on-net calls and 1,000 minutes per month on other networks. Package
price is Rs. 11,550 per quarter payable in advance on the first day of each quarter. At the end of the contract, the phone
would not be returned to CT.
On the first day of the promotional announcement, CT sold 1,000 packages. Based on the data available with CT, it is
expected that each customer would utilize 10,000 minutes of other networks with quarterly break-up as under:

Quarter ending Minutes

31-Mar-21 2,700
30-Jun-21 2,000
30-Sep-21 2,900
31-Dec-21 2,400

The mobile phone has a retail value of Rs. 34,000, if sold separately. A monthly subscription for unlimited on-net calls is
Rs. 500 while every call on other networks is charged at Rs. 1.5 per minute, if billed separately.
Required:
Compute the quarterly revenue to be recognised for the quarters ending 31 March 2021 and 30 June 2021. (08)
[Q-3, Spr-21]

QUESTION NO. 3
(a) Stupa Limited (SL) sells electrical products at following standalone prices:

Products Rupees
E-1 30,000
E-2 30,000
E-3 50,000

Nasir Abbas FCA

 IFRS 15 – QUESTIONS (2)

Required:
Calculate transaction price to be allocated to each product under each of the following independent situations:
(i) SL offered to sell one unit of each of the above products for Rs. 90,000. SL regularly sells one unit each of E-2 and
E-3 together for Rs. 70,000. (04)
(ii) SL offered to sell one unit of E-1 and two units of E-3 for Rs. 104,000. (02)

(b) On 1 October 2018, Kushan Construction Limited (KCL) entered into a contract to construct a commercial building for
a customer for Rs. 50 million and a bonus of Rs. 10 million if the building is completed on or before 31 December
2019.

Till 30 June 2019, KCL expected that the building will be completed within time at a total cost of Rs. 40 million.
However, due to bad weather and time involved in regulatory approvals, the building was completed on 28 February
2020 at a total cost of Rs. 42 million of which Rs. 26 million was incurred till 30 June 2019.
Required:
Compute profit to be recognized for the years ended 30 June 2019 and 2020, if:
(i) performance obligation under the contract is satisfied over time. (04)
(ii) performance obligation under the contract is satisfied at a point in time. (01)

(c) The nature, timing and amount of consideration promised by a customer affect the estimate of the transaction price.
Define the term ‘transaction price’ and list down the factors that may affect determination of the transaction price.
(04)
[Q-5, Autumn 2020]

QUESTION NO. 4
Financial statements of Trich Mir Limited (TML) for the year ended 31 December 2019 are under preparation. While
reviewing revenues from contract with customers, following matters have been identified:
(i) On 1 October 2019, TML sold Machine C to Chan Limited for Rs. 25 million. As per the contract, payment would be
made after 2 years. The accountant recognised sales revenue of Rs. 25 million upon delivery on 1 October 2019.
Further, commission paid to sales employees for winning the contract of Rs. 1.6 million was capitalised and is being
amortised over 2 years period. Applicable discount rate is 10% per annum.
(ii) TML entered into a contract to manufacture a specialised machine for Dhan Limited at a price of Rs. 30 million. The
contract meets the criteria of recognition of revenue over time. At the year end, the machine was 60% complete
and it was estimated that a further cost of Rs. 10 million would be incurred. Cost of Rs. 15 million incurred till year
end has been included in closing inventory and receipts of Rs. 11 million have been credited to revenues.
(iii) TML entered into a contract to sell one unit of Machine A and Machine B for a total price of Rs. 16 million. Machine
A was delivered in December 2019 to the customer while Machine B was delivered in January 2020. The
consideration of Rs. 16 million is due only after TML transfers both the machines to the customer. TML sells
machines A and B at standalone prices of Rs. 12 million and Rs. 8 million respectively. The accountant recognised
receivable and revenue of Rs. 12 million upon delivery of Machine A.
Required:
Prepare correcting entries for the year ended 31 December 2019 in accordance with IFRS 15 ‘Revenue from Contracts
with Customers’. (14)
[Spring 2020, Q-7]

QUESTION NO. 5
Thursday Enterprise (TE) is a supplier of product Zee and has provided you the following information:
(a) On 1 August 2018, TE entered into a six months contract with customer Alpha for sale of Zee for Rs. 250 per unit,
under the following terms and conditions:
• if Alpha purchases more than 5,000 units during the contract period, the price per unit would be retrospectively
reduced to Rs. 215 per unit.
• TE’s unconditional right to receive consideration would be established upon:
- completion of quality control procedures by Alpha for the first order. The procedure would take a week after
receiving the goods.
- placement of order by Alpha for subsequent orders.

Nasir Abbas FCA

 IFRS 15 – QUESTIONS (3)

At the inception of the contract, TE concludes that Alpha’s purchases will not exceed the 5,000 units threshold for the
discount. Alpha placed the following orders:

Order date Units Delivery date Payment date

[Transfer of control]
10-08-2018 3,000 28-08-2018 12-09-2018
25-12-2018 4,000 15-01-2019 10-01-2019

(b) On 1 February 2019, TE entered into a six months contract with another customer Beta for sale of Zee for Rs. 250 per
unit, under the following terms and conditions:
• if the Beta purchases more than 15,000 units during the contract period, the price per unit would be
retrospectively reduced to Rs. 215 per unit.
• TE’s unconditional right to receive consideration would be established upon delivery of goods to Beta.
At the inception of the contract, TE concludes that Beta will meet 15,000 units threshold for the discount. Beta placed
the following orders:
Order date Units Delivery date Payment date
[Transfer of control]
14-02-2019 10,000 25-02-2019 20-03-2019
01-06-2019 8,000 15-07-2019 18-07-2019

Required:
In respect of the above contracts, prepare journal entries to be recorded in the books of TE for the years ended 31
December 2018 and 2019.
(Entries without date will not be awarded any marks) (15)
[Autumn 2019, Q-8]
QUESTION NO. 6
(a) List the criteria that must be met to account for a contract with customer under IFRS 15 ‘Revenue from Contracts
with Customers’. (04)
(b) Guitar World (GW) normally sells Machine A13 for Rs. 1.7 million. Maintenance services for such type of machines are
provided separately at Rs. 25,000 per month. Details of two contracts for sale of Machine A13 are as follows:
(i) On 1 July 2018, GW signed a contract with Energene Limited to sell Machine A13 with one year free maintenance
services at a lumpsum payment of Rs. 1.8 million. The amount was received upon delivery of machine on 1
August 2018.
(ii) On 1 October 2018, GW sold Machine A13 to Vitalene Limited for Rs. 1.95 million. As per the contract, payment
would be made after 2 years. Maintenance services would also be provided for Rs. 25,000 per month for two
years which would be paid at the end of each month.
Required:
With reference to IFRS-15 ‘Revenue from Contracts with Customers’, explain how the above contracts should be recorded
in GW’s books for year ended 31 December 2018. (Show supporting calculations but entries are not required) (11)
[Spring 2019, Q-4]

QUESTION NO. 7
(a) List the five steps involved in recognizing revenue under IFRS 15 ‘Revenue from Contracts with Customers’. (03)
(b) On 1 June 2018 Ravi Limited (RL) delivered 500 units of one of its products to Bravo Limited (BL) at Rs. 200 per unit.
BL immediately paid the amount and obtained control upon delivery. BL is allowed to return unused units within 30
days and receive a full refund. RL’s cost of the product is Rs. 150 per unit and it uses perpetual system for recording
inventory transactions. On 30 June 2018, BL returned 20 units.
Required:
Prepare necessary journal entries in the books of RL on 1 June 2018 and 30 June 2018 under each of the following
independent situations:
(i) Based upon historical data, RL estimates that 5% units will be returned on expiry of 30 days. (05)
(ii) The product is new and RL has no relevant historical evidence of product returns or other available market
evidence. (04)
{Autumn 2018, Q-3}

Nasir Abbas FCA

 IFRS 15 – QUESTIONS (4)

QUESTION NO. 8
(a) Define ‘performance obligation’. List any six examples of promised goods and services as per IFRS 15 ‘Revenue from
Contracts with Customers’. (05)
(b) On 1 October 2017, Galaxy Telecommunications (GT) entered into a contract with a bank for supplying 20 smart
phones to the bank staff with unlimited use of mobile network for one year. The contract price per smart phone is Rs.
34,650 and the price is payable in full within 10 days from the date of contract. At the end of the contract, the phones
will not be returned to GT. The entire amount received as per contract was credited by GT to advance from
customers account. The smart phones were delivered on 1 November 2017. If sold separately, GT charges Rs. 18,000
for a smart phone and a monthly fee of Rs. 1,800 for unlimited use of mobile network.
Required:
Prepare adjusting entry for the year ended 31 December 2017 in accordance with IFRS 15 ‘Revenue from Contracts
with Customers’. (04)
[Spring 2018, Q-2]

QUESTION NO. 9
(a) Jupiter Limited (JL) entered into a two year contract on 1 January 2017, with a customer for the maintenance of
computer network. JL has offered the following payment options:
Option 1: Immediate payment of Rs. 200,000.
Option 2: Payment of Rs. 110,000 at the end of each year.
The applicable discount rate is 6.596%.
Required:
Prepare journal entries to be recorded in the books of JL under each option over the period of contract. (05)
(b) Pluto Limited (PL) sells industrial chemicals at following standalone prices:

Products Rupees
(per carton)
C-1 100,000
C-2 90,000
C-3 110,000
PL regularly sells a carton each of C-2 and C-3 together for Rs. 170,000.
Required:
Calculate the selling price to be allocated to each product, in case PL offers to sell one carton of each product for a
total price of Rs. 260,000. (05)
(c) An entity shall recognise revenue when (or as) the entity satisfies a performance obligation by transferring a
promised good or service to a customer. An asset is transferred when (or as) the customer obtains control of that
asset.
Required:
List the different indicators of transfer of control. (04)
{Autumn 2017, Q-6}

QUESTION NO. 10
(a) Define the term ‘performance obligation’ and state the criteria which should be met if goods or services promised to
a customer are to be considered as distinct. (04)
(b)
(i) ECL has entered into a contract with Kashif Builders for construction of a residential project, including supply of
construction material, architectural services, engineering and site clearance. ECL and its competitors provide such
services separately also. (03)
(ii) Solutions Limited, a software developer, entered into a two year contract with a customer to provide software
license including future software updates and post implementation support services. The software license would
remain functional even if the updates and post implementation support services are discontinued. (03)
Required:
In view of the requirements of IFRS 15 ‘Revenue from Contracts with Customers’, discuss whether goods and services
provided in each of the above contracts represent a single performance obligation.
[Spring 2017, Q-2]

Nasir Abbas FCA

 IFRS 15 – QUESTIONS (5)

QUESTION NO. 11
Decent Constructions (DC) enters into a contract with a customer to build an asset for Rs. 20 million with a performance
bonus of Rs. 2 million that will be paid based on the timing of completion. The amount of the performance bonus
decreases by 10% per week for every week beyond the agreed-upon completion date. The contract requirements are
similar to contracts DC has performed previously, and management believes that such experience is predictive for this
contract. DC concludes that the expected value method is most predictive in this case.
DC estimates that there is a 60% probability that the contract will be completed by the agreed-upon completion date, a
30% probability that it will be completed one week late, and a 10% probability that it will be completed two weeks late.
Required
How should DC determine the transaction price?

QUESTION NO. 12
United Constructions (UC) enters into a contract to construct a manufacturing facility for a customer. The contract price
was agreed at Rs. 250 million plus a Rs. 25 million bonus only if the facility is completed by a specified date. The contract
is expected to take three years to complete. UC has a long history of constructing similar facilities. UC will receive no
bonus if the facility is not completed by the specified date. UC believes, based on its experience, that it is 95% likely that
the contract will be completed successfully and in advance of the target date.
Required:
How should UC determine the transaction price?

QUESTION NO. 13
Newage Constructions (NC) enters into a contract to construct a manufacturing facility for a customer. The contract price
was agreed at Rs. 100 million and a stipulated time period of 2 years was also agreed. To ensure timely completion, a
penalty of Rs. 10 million was agreed which would be deducted from contract price if work is not completed within 2 years.
NC believes, based on its experience, that it is 80% likely that the contract will be completed successfully and in advance
of the target date.
Required:
How should NC determine the transaction price?

QUESTION NO. 14
Alpha Consultants (AC) entered into a 1-year contract for book keeping services with a customer. Total contract price was
agreed at Rs. 5 million. It was also agreed that AC will be entitled to an extra Rs. 500,000 if number of mistakes found in
audit are less than 10. AC has experience of providing such services and it is highly probable that mistakes will not exceed
the acceptable limit.
Required:
How should AC determine the transaction price?

QUESTION NO. 15
Beta Traders (BT) enters into 100 contracts with customers on January 1, 2018. Each contract includes the sale of one
product for Rs. 500. The cost to BT of each product is Rs. 300. Cash is received upfront and control of the product
transfers on delivery. Customers can return the product within 30 days to receive a full refund. BT can sell the returned
products at a profit.
BT has significant experience in estimating returns for this product. It estimates that 92 products will not be returned.
Required:
How the above transactions should be accounted for if after 30 days:
(a) no refunds are claimed
(b) 5 products are refunded
(c) 10 products are refunded

QUESTION NO. 16
Gamma Traders (GT) enters into a 1-year contract with a customer to supply standard capacity UPS for office use. The
contract states that price per UPS will be adjusted retroactively once customer reaches certain sale volume as follows:
Cumulative annual sales (UPS) Price (Rs.)
0 – 500 5,000
501 – 800 4,000
801 and above 3,500

Nasir Abbas FCA

 IFRS 15 – QUESTIONS (6)

Based on past experience and knowledge of customer, GT estimates that sales volume for the year will be 610 UPS. At the
end of first month, customer purchased 130 UPS at a price of Rs. 5,000 per UPS.
Required:
Journal entry to record first month sale.

QUESTION NO. 17
Using the same situation as in Question 16, at the end of 2nd month customer purchased 300 units at a price of Rs. 5,000
per UPS. Now GT estimates that cumulative sale volume for the year will be 850 UPS.
Required:
Journal entry to record 2nd month sale.

QUESTION NO. 18
On January 1, 2018 Gallant Limited (GL) sold a machine to a customer. Control was transferred at the time of delivery.
However, customer requested for a special credit of 2 years. Therefore a special price of Rs. 950,000 was charged.
Prevailing market interest rate on that date was 10%. Financial year of GL ends every December 31 st. Cost of machine to
GL was Rs. 400,000. Cash equivalent price of machine was Rs. 750,000.
Required:
All journal entries for above transaction.

QUESTION NO. 19
On January 1, 2018 Prudent Limited (PL) agreed to sell an equipment to a customer. The customer demanded its delivery
after 2 years. PL will manufacture the equipment at the time of delivery. PL gave two options to customer:
Option I – 100% advance payment of Rs. 800,000 at the time of agreement
Option II – Payment of Rs. 1,000,000 at the time of delivery
Prevailing market interest rate at the date of agreement was 9%.
Required:
All journal entries for above transaction if customer opts for:
(a) Option I
(b) Option II

QUESTION NO. 20
Honest Traders (HT) entered into a contract with a customer to deliver Product A and Product B for Rs. 150,000 payable
up-front. Product A will be delivered in two years and Product B will be delivered in five years.
HT has determined that contract contains two performance obligations; Product A and Product B. Total price of Rs.
150,000 has been allocated, on the basis of stand-alone prices, to Product A and B at Rs. 37,500 and Rs. 112,500
respectively. HT also concludes that transaction contains significant financing component and interest rate of 6% is
appropriate.
Required:
Calculate annual interest expense till final delivery and amount of revenue recognized for each product.

QUESTION NO. 21
Finance House (FH) sold an equipment, costing Rs. 60,000, to a customer on installment sale basis on January 1, 2018.
Each installment of Rs. 40,000 will be received on every December 31 st for 3 years. Control was transferred on delivery.
Applicable market interest rate is 12%. FH prepares its financial statements on 31st December every year.
Required:
All journal entries for above transaction.

QUESTION NO. 22
Modern Engineering (ME) entered into a contract for 3-year maintenance services with a manufacturing concern. Same
service will be rendered over 3-year period. Contract required 100% upfront fees of Rs. 300,000 payable at the time of
agreement on January 1, 2018. Prevailing market interest rate for ME is 12%. ME prepares its financial statements on 31 st
December every year.
Required:
All journal entries for above transaction.

Nasir Abbas FCA

 IFRS 15 – QUESTIONS (7)

QUESTION NO. 23
Manufacture Co enters into a contract with Technology Co to build a machine. Technology Co pays Manufacture Co Rs. 1
million and contributes materials to be used in the development of the machine. The materials have a fair value of Rs.
500,000. Technology Co will deliver the materials to Manufacture Co approximately three months after development of
the machine begins. Manufacture Co concludes that it obtains control of the materials upon delivery by Technology Co
and could elect to use the materials for other projects.
Required:
How should Manufacture Co determine the transaction price?

QUESTION NO. 24
Golden Gate enters into a contract with a major chain of retail stores. The customer commits to buy at least Rs. 20m of
products over the next 12 months. The terms of the contract require Golden Gate to make a payment of Rs. 1m to
compensate the customer for changes that it will need to make to its retail stores to accommodate the products. By the
31 December 2018, Golden Gate has transferred products with a sales value of Rs. 4m to the customer.
Required
How much revenue should be recognised by Golden Gate in the year ended 31 December 2018?

QUESTION NO. 25
Mobile Co sells 1,000 phones to Retailer for Rs. 100,000. The contract includes an advertising arrangement that requires
Mobile Co to pay Rs. 10,000 toward a specific advertising promotion that Retailer will provide. Retailer will provide the
advertising on strategically located billboards and in local advertisements. Mobile Co could have elected to engage a third
party to provide similar advertising services at a cost of Rs. 10,000.
Required:
How should Mobile Co determine the transaction price?

QUESTION NO. 26
Marine sells boats and provides mooring facilities for its customers. Marine sells the boats for Rs. 300,000 each and
provides anchorage facilities for Rs. 50,000 per year. Marine concludes that the goods and services are distinct and
accounts for them as separate performance obligations. Marine enters into a contract to sell a boat and one year of
anchorage services to a customer for Rs. 325,000.
Required:
How should Marine allocate the transaction price of Rs. 325,000 to the performance obligations?

QUESTION NO. 27
Alpha Traders (AT) sells industrial boilers and also provides maintenance services. On January 1, 2018 AT sold a boiler
along with one year maintenance service at a package price of Rs. 400,000 to a customer. The contract involves two
performance obligations. Boilers are normally sold at a price of Rs. 360,000 and maintenance services are sold at cost plus
20%. Estimated cost of services in this contract will be Rs. 50,000.
Required:
Allocate transaction price to the performance obligations.

QUESTION NO. 28
Seller enters into a contract with a customer to sell Products A, B, and C for a total transaction price of Rs. 100,000. Seller
regularly sells Product A for Rs. 25,000 and Product B for Rs. 45,000 on a standalone basis. Product C is a new product that
has not been sold previously, has no established price, and is not sold by competitors in the market. Products A and B are
not regularly sold together at a discounted price. Product C is delivered on March 1, and Products A and B are delivered
on April 1.
Required:
How should Seller determine the standalone selling price of Product C?

Nasir Abbas FCA

 IFRS 15 – QUESTIONS (8)

QUESTION NO. 29
A seller sold four products A, B, C and D (all qualify for separate performance obligation) to a customer at a package price
of Rs. 500,000. It also sells such products on individual basis at following prices:

Products Stand-alone price

(Rs.)
A 120,000
B 140,000
C 130,000
D 150,000

Some customers also normally purchase products A and B at a package price of Rs. 250,000.
Required:
Allocate transaction price of Rs. 500,000 to four performance obligations.

QUESTION NO. 30
Telecom sells wireless mobile phone and other telecom service plans from a retail store. Sales agents employed at the
store signed 120 customers to two-year service contracts in a particular month. Telecom pays its sales agents
commissions for the sale of service contracts in addition to their salaries. Salaries paid to sales agents during the month
were Rs. 120,000, and commissions paid were Rs. 24,000. The retail store also incurred Rs. 20,000 in advertising costs
during the month.
Required:
How should Telecom account for the costs?

QUESTION NO. 31
TechCo enters into a contract with a customer to track and monitor payment activities for a five-year period. A
prepayment is required from the customer at contract inception. TechCo incurs costs at the outset of the contract
consisting of uploading data and payment information from existing systems. The ongoing tracking and monitoring is
automated after customer set up. There are no refund rights in the contract.
Required:
How should TechCo account for the set-up costs?

QUESTION NO. 32
(a) On 1 July 2011, Brilliant Limited, an importer of textile machinery, sold a machine costing Rs. 3.6 million to its
regular customer Superb Textile Mills Limited. The details of the transaction are as follows:
 Delivery of the machine was made on 5 July 2011.
 Cash price before trade discount was Rs. 4.8 million.
 Trade discount amounted to Rs. 0.8 million.
 The agreed price is payable in three annual installments as follows:
30 June 2012 Rs. 0.4 million
30 June 2013 Rs. 0.4 million
30 June 2014 Rs. 4.8 million
Required:
Discuss the recognition and measurement of revenue from the above transaction.
(Calculations are not required) (07)

(b) During the year ended 30 June 2012, Fabulous Enterprise (FE), a construction company, signed an agreement
with a highly reputed multinational organization for scraping and re-plastering of 10 buildings for a total contract
price of Rs. 22 million.
At the time of signing of the agreement, FE had estimated the total contract cost at Rs. 16 million.
Up to 30 June 2012, scarping and re-plastering of 6 buildings had been completed. The cost incurred up to year
end amounted to Rs. 10 million whereas the remaining costs were estimated at Rs. 7 million.
Required:
Discuss the recognition and measurement of revenue from the above transaction.
(Calculations are not required) (07)

Nasir Abbas FCA

 IFRS 15 – QUESTIONS (9)

QUESTION NO. 33
On 1 January 2018, Angelo enters into a twelve-month ‘pay monthly’ contract for a mobile phone. The contract is with
TeleSouth, and terms of the plan are:
(a) Angelo receives a free handset on 1 January 2018
(b) Angelo pays a monthly fee of Rs. 200, which includes unlimited free minutes. Angelo is billed on the last day of
the month
Customers may purchase the same handset from TeleSouth for Rs. 500 without the payment plan. They may also enter
into the payment plan without the handset, in which case the plan costs them Rs. 175 per month.
Required:
Show how TeleSouth should recognise revenue from this plan in accordance with IFRS 15 Revenue from contracts with
customers. Your answer should also give journal entries:
(a) On 1 January 2018
(b) On 31 January 2018

QUESTION NO. 34
Hassan Builders (HB) entered into a construction contract for construction of a building on January 1, 2017. Total contract
price was agreed at Rs. 500 million. Following information relates to the year ending December 31, 2017:
Rs. million
Contract cost incurred to date 80
Estimated further cost to complete the contract 320
Invoice issued on December 1, 2017 75
(HB has an unconditional right to receive payment against this invoice)
It has been determined that construction of building is single performance obligation and it will be satisfied over time. It is
HB’s policy to measure progress using proportion of cost incurred to date method.
Required:
Prepare extracts of statement of financial position and statement of comprehensive income for the year ending
December 31, 2017.

QUESTION NO. 35
Kamran Builders (KB) signed a contract for construction of an office building for a customer in 3 years. Total contract price
was agreed at Rs. 700 million. Construction was commenced on January 1, 2021 and following information relates the
year ended December 31, 2021:
- A plant was purchased on January 1, 2021 for Rs. 320 million. Its total useful life is estimated to be 20 years. It would
be used throughout the contract period.
- Total costs incurred during the year (excluding plant depreciation) amounted to Rs. 85 million.
- As per contract, 1st invoice was raised on December 31, 2021 for Rs. 120 million which will be received on January 31,
2022.
- At year end, additional total cost (excluding plant depreciation) to be incurred for completion of contract is estimated
at Rs. 310 million.
- Using an appropriate method, progress is estimated at 22% till year end.
Required:
Journal entries, extracts of SOFP and SOCI for the year ending December 31, 2021.

Nasir Abbas FCA