QUESTION ONE

$[20]$

Mabaso Engineering $($Pty$)$ Ltd is a South African company providing large$-$scale construction and engineering services. The company enters into long$-$term contracts, and revenue is recognized in accordance with IFRS $15$ Revenue from Contracts with Customers.

For the financial year ending $31$ December $20$X$3,$ the following significant events occurred:

On $1$ February $20$X$3,$ Mabaso Engineering signed a contract with the Ekurhuleni Municipality to construct a new bridge for R$10$ million. The contract includes a performance bonus of R$1$ million if the bridge is completed by $31$ December $20$X$3.$ The contract specifies that Mabaso will be paid R$2$ million upfront, with R$8$ million paid upon completion.

As of $31$ December $20$X$3,$ Mabaso completed $80\%$ of the construction, based on costs incurred relative to total expected costs. The performance bonus is deemed $70\%$ likely to be earned at the reporting date.

$2.$ On $1$ July $20$X$3,$ Mabaso entered into a separate contract to supply prefabricated steel structures to a mining company. The contract price is R$5$ million. Mabaso delivered the structures in August $20$X$3$ and issued an invoice for the full amount. However, the mining company experienced financial difficulties and paid only R$3$ million by year$-$end. There is a significant uncertainty regarding the remaining payment.

$3.$ Mabaso also received a non$-$refundable deposit of R$500,000$ from another client on $15$ October $20$X$3$ for a project that will begin in early $20$X$4.$

$4.$ The standard corporate tax rate is $30\%.$

Required:

a$.$ Using the principles of IFRS $15,$ identify and evaluate the performance obligations under the contract with the Ekurhuleni Municipality. Determine whether the contract qualifies as a revenue contract and explain how the performance bonus should be treated as of $31$ December $20$X$3.(5)$

b$.$ Prepare the journal entries for Mabaso Engineering to record the following transactions for the year ending $31$ December $20$X$3$:

The recognition of revenue and progress billing for the construction of the bridge as at $31$ December $20$X$3,$ including the partial recognition of the performance bonus.

The recognition of revenue, invoicing, and the partial payment for the delivery of steel structures to the mining company.

The receipt of the non$-$refundable deposit for the project commencing in $20$X$4.$

Show all relevant calculations and provide narrations.