Question $4\mathrm{.}6$

Part A

Bob Construction entered into an agreement with Animania Properties for the construction of a shopping centre in Johannesburg for C$24000000.$ The pertinent delails of the agreement follow:

$\backslash$table$[[$Description:$,],[$Contract price,C$24000000],[$Completion period,$36$ months$],[$Early completion period,$24$ months$],[$Early completion incentive,C$2400000],[$Payment terms,Monthly progress payments Note $1]]$

Note $1$: At contract inception, and after finalising the construction schedule, Bob Construction believes there is a $95\%$ chance the construction will be completed in $24$ months and that the company will qualify for the entire bonus amount.

$24$

Chapter $4$

GAAP: Graded Questions

Revenue from contracts with customers

Required:

Discuss how Bob Construction should calculate the transaction price of the contract with Animania Property Holdings.

Part B

Bob Construction had a significant store of construction machinery standing idle, which it decided to sell. It managed to sell machinery for C$2880000$ to Goofy Property Holdings in January $20$X$6.$ Goofy Property Holdings will pay for this machinery in $3$ equal instalments, payable annually in arrears. The machinery's cash selling price was C$2250000.$

Required:

a$)$ Discuss how Bob Construction should calculate and allocate the transaction price from the contract with Goofy Property Holdings for the year ended $31$ December $20$X$6.$

b$)$ Prepare the journal entries to account for the contract with Goofy Property Holdings for the year ended $31$ December $206$ and briefly discuss the principles behind the journals

Ignore loss allowances.Question $4\mathrm{.}6$

Part A

Bob Construction entered into an agreement with Animania Properties for the construction of a shopping centre in Johannesburg for C$24000000.$ The pertinent delails of the agreement follow:

$\backslash$table$[[$Description:$,],[$Contract price,C$24000000],[$Completion period,$36$ months$],[$Early completion period,$24$ months$],[$Early completion incentive,C$2400000],[$Payment terms,Monthly progress payments Note $1]]$

Note $1$: At contract inception, and after finalising the construction schedule, Bob Construction believes there is a $95\%$ chance the construction will be completed in $24$ months and that the company will qualify for the entire bonus amount.

$24$

Chapter $4$

GAAP: Graded Questions

Revenue from contracts with customers

Required:

Discuss how Bob Construction should calculate the transaction price of the contract with Animania Property Holdings.

Part B

Bob Construction had a significant store of construction machinery standing idle, which it decided to sell. It managed to sell machinery for C$2880000$ to Goofy Property Holdings in January $20$X$6.$ Goofy Property Holdings will pay for this machinery in $3$ equal instalments, payable annually in arrears. The machinery's cash selling price was C$2250000.$

Required:

a$)$ Discuss how Bob Construction should calculate and allocate the transaction price from the contract with Goofy Property Holdings for the year ended $31$ December $20$X$6.$

b$)$ Prepare the journal entries to account for the contract with Goofy Property Holdings for the year ended $31$ December $206$ and briefly discuss the principles behind the journals

Ignore loss allowances.