One of the criteria that contracts must meet to apply the revenue standard is that collectibility of
Question:
One of the criteria that contracts must meet to apply the revenue standard is that collectibility of the sales price must be reasonably possible:
Cement Masters has entered an agreement with Meadow Golf Club to construct a new path for $200,000. With this agreement is a potential bonus payment of $40,000. This performance bonus is will be paid in full if the project is completed by the agreed upon date. Otherwise, the payment amount will decrease by $10,000 per week for each week beyond the agreed upon date. Experience by Cement Masters' project manager leads him to estimate that there is a 55% probability the project will complete on time, a 30% probability the project will be 1 week late, and 15% probability the project will complete 2 weeks later than the agreed upon date.
1. What is the transaction price that Cement Masters should compute for this agreement with Meadow Golf Club?
2. What is the transaction price that Cement Masters should compute for this agreement with Meadow Golf Club with a revised probability of 90%, otherwise it will be finished one week late.
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield