Referring to the revenue arrangement in BE18.6, determine the transaction price for the contract, assuming (a) Nair
Question:
Referring to the revenue arrangement in BE18.6, determine the transaction price for the contract, assuming
(a) Nair is only able to estimate whether or not the building can be completed by August 1, 2023 (Nair estimates that there is a 70% chance that the building will be completed by August 1, 2023),
(b) Nair has limited information with which to develop a reliable estimate of completion by the August 1, 2023, deadline.
BE18.6
Nair A.G. enters into a contract with a customer to build an apartment building for €1,000,000. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of €150,000 to be paid if the building is ready for rental beginning August 1, 2023. The bonus is reduced by €50,000 each week that completion is delayed. Nair commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:
Completed by ................... Probability
August 1, 2023 .......................... 70%
August 8, 2023 .......................... 20
August 15, 2023 .......................... 5
After August 15, 2023 ................ 5
Step by Step Answer:
Intermediate Accounting IFRS
ISBN: 9781119607519
4th Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield