Fluorine Limited (FL), a manufacturer of ships, has entered into the following contracts during the year ended
Question:
Fluorine Limited (FL), a manufacturer of ships, has entered into the following contracts
during the year ended 31 December 2022:
(i)
On 1 January 2022, FL entered into a contract with Alpha Limited (AL) to construct
a cruise ship for Rs. 400 million to be delivered on 31 December 2023 i.e. the date on
which control of the ship would be transferred to AL. As per the contract, 90% of
agreed amount was paid immediately by AL and the balance will be paid on delivery.
Till 31 December 2022, only 40% of the construction of the ship was completed at a
cost of Rs. 150 million.
(ii)
On 1 April 2022, FL entered into a contract with Beta Limited (BL) to sell three fishing
boats for Rs. 50 million per boat. The amount was received on 1 April 2022 but the
boats were delivered on 1 May 2022. As per the contract, if BL purchases more than
six boats before 31 December 2022, FL will retrospectively reduce the price to
Rs. 48 million per boat. At the inception of the contract, FL expected that BL would
meet the threshold for the discount.
On 1 November 2022, BL purchased two additional boats on the same price of
Rs. 50 million per boat for which the payment was made in January 2023.
Despite FL’s expectation, no further order was placed by BL till 31 December 2022.
(iii)
On 1 November 2022, FL sold a luxury yacht to Gamma Limited (GL) for
Rs. 100 million on cash. FL also provided GL with a Rs. 5 million discount voucher
for any interior design work on yacht within six months. There is 80% likelihood that
GL will award the work of interior design within six months and will avail the
discount. However, no interior design work was awarded till 31 December 2022. FL
normally sells such luxury yachts for Rs. 100 million without any discount voucher for
interior design work.
Discount rate of 15% per annum may be used wherever required.
International Business The Challenges of Globalization
ISBN: 978-0133063004
7th edition
Authors: John J. Wild, Kenneth L. Wild