In May 20X2, the city council of Oshawa, Ontario awarded a $7.6 million contract to Build-It Corp.
Question:
In May 20X2, the city council of Oshawa, Ontario awarded a $7.6 million contract to Build-It Corp. (BIC) to construct a new community centre in the city. The contract included a clause that provided for an early completion bonus if BIC finished the project at least one month before the scheduled completion date of October 31, 20X3.
The bonus completion schedule, together with BIC’s senior management’s estimates as to the probability of finishing by the specified dates, follows:
Project completion date | Bonus payment | Estimated probability |
Prior to July 31, 20X3 | $400,000 | 10% |
Between August 1 and 31, 20X3 | $300,000 | 20% |
Between September 1 and 30, 20X3 | $200,000 | 40% |
October 1, 20X3, or later | $0 | 30% |
BIC’s year end is December 31. It reports its financial results in accordance with IFRS and uses the most likely amount to estimate variable consideration.
What is the transaction price that should be used to recognize revenue for this contract?
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker