Rexim Contracting Ltd has a fixed price contract to build a tower block. The initial amount of revenue agreed is Rs225m. At the start of the contract on 1 January 2017 the initial estimate of the contract costs is Rs205m. At the end of 2017 the estimate of the total costs has risen to Rs207m.

During 2018 the customer agrees to a variation which increases expected revenue from the contract by Rs7m and causes additional costs of Rs4m. At the end of 2018, there are materials stored on the site for use during the following period which cost Rs2.9m.

Rexim Contracting Ltd have decided to determine the stage of completion of the contract by calculating the proportion that contract costs incurred for work to date bear to the latest estimated total contract costs. The contract costs incurred at the end of each year were as follows: 2017, Rs57.32m; 2018, Rs159.24m (including materials in store); 2019, Rs211m.

Required:
Compute the stage of completion for each year of the contract and show how revenues, costs and profits will be recognised in each year, according to provisions of IAS 11 Construction Contracts.

Answer rating: 100% (QA)

IAS 11 IAS 11 Construction Contracts provides requirements on the allocation of contract revenue and contract costs to accounting periods in which con... View the full answer