Question 1Contracts and Performance Obligations

ABC is a motor vehicle dealer, with several customers

X traded in her existing vehicle for a new car, paying the difference in value in cash.

Y purchased a motorcycle, delivering an identical vehicle in exchange. He also owns a vehicle dealership.

Z paid for a new car and also chose several additional products for which he paid extra. These included tinted windows, a three-year warranty and free servicing valued at $2000. The servicing option can be used for any vehicles over two-year period.

Required

a. Explain whether ABC has contracts with X and Y.

b. Identify the performance obligation(s) with respect to Customer Z.

For each performance obligation, explain whether the related revenue should be recognised ata point in timeorover time.

Question 4Construction Contracts

A company is constructing a bridge at a fixed price of $15 million over three years. The customer remains in control of the bridge throughout the contract. The expected costs and billings are provided below.

Year

1

2

3

Expected Cost

4,000,000

4,500,000

3,500,000

Billings

5,000,000

5,000,000

5,000,000

Required

Assume the percentage of completion CAN be measured reliably.

a. If actual costs coincide with expectations:

Calculate the amount of revenue that the company should company recognise in each year