Notsogood Property Developers signed a contract with a customer, OK Property Renters,

to construct a commercial building for a consideration of $5 million. The project is

expected to last for two years. The customer agreed to pay a bonus of $400,000 on top of

the initial consideration if the project is completed within two years. At the beginning of

year two, the customer modified the initial plan to accommodate more space for the

recreational area, which increased the initial contract price by 10%. Additionally, the

customer offered to increase the bonus by 5% and the completion time by six months.

Notsogood Property estimated the total project costs to be $4,200,000 initially and then

increased by 10% after modification of the plan. The company incurred $1,800,000 in

costs in the first year.

3

Notsogood Property Developers maintains a network of external companies to promote

the business and offers a 1.25% return on the initial contract price for each successful job

they bring in. OK Property Renters is a direct referral of ABC Property Promotors.

Assuming that costs incurred provide an appropriate measure of progress toward

completing the contract,

a) How much revenue should Notsogood Property Developers recognise

for the first year, assuming that it is unlikely that the company

will meet the completion deadline due to supply chain issues? (2 Mark)

b) How much revenue should Notsogood Property Developers recognise

for the first year, assuming that the company has secured a material supply

and will meet the completion deadline? (2 Mark)

c) How much additional revenue should Notsogood Property Developers recognise on

the date of contract modification, assuming that it is unlikely that the

company will meet the completion deadline due to supply chain issues? (2 Mark)

d) How much additional revenue should Notsogood Property Developers recognise on

the date of contract modification, assuming that the company will meet

the completion deadline?

Answer rating: 100% (QA)

Part a Assuming that Notsogood Property Developers will not meet the completion deadline due to supply chain issues the revenue recognized for the fir... View the full answer