Hermes Co., a private company, enters into a service concession arrangement whereby Hermes undertakes to build...
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Hermes Co., a private company, enters into a service concession arrangement whereby Hermes undertakes to build an airport for the government with a completion period of two (2) years, operate and maintain the airport for eight (8) years after completion, and transfer the airport to the government at the end of Year 10. In exchange, the government pays Hermes Co. P300 million per year in years 3 to 10. Hermes Co. makes the following estimates at the contract inception: Year 1 2 3-10 Contract costs P400 million P400 million P10 million Stand-alone selling price Forecast cost + 30% Construction services Operation services The imputed interest rate in the contract is 19.10%. All cash flows take place at the end of each year. REQUIRED: 1. Total transaction price 2. Carrying amount of the asset recognized on the contract at the end of year 3 3. Interest income over the term of the contract Forecast cost + 30% Forecast cost + 10% Hermes Co., a private company, enters into a service concession arrangement whereby Hermes undertakes to build an airport for the government with a completion period of two (2) years, operate and maintain the airport for eight (8) years after completion, and transfer the airport to the government at the end of Year 10. In exchange, the government pays Hermes Co. P300 million per year in years 3 to 10. Hermes Co. makes the following estimates at the contract inception: Year 1 2 3-10 Contract costs P400 million P400 million P10 million Stand-alone selling price Forecast cost + 30% Construction services Operation services The imputed interest rate in the contract is 19.10%. All cash flows take place at the end of each year. REQUIRED: 1. Total transaction price 2. Carrying amount of the asset recognized on the contract at the end of year 3 3. Interest income over the term of the contract Forecast cost + 30% Forecast cost + 10%
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1 Total Transaction Price Total Transaction Price P300 million x 8 years P2400 million 2 Carrying Am... View the full answer
Related Book For
Accounting for Governmental and Nonprofit Entities
ISBN: 978-1259917059
18th edition
Authors: Jacqueline L. Reck, James E. Rooks, Suzanne Lowensohn, Daniel Neely
Posted Date:
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