Hermes Co., a private company, enters into a service concession arrangement whereby Hermes undertakes to build an airport for the government with a completion period of two (2) years, operate and maintain the airport for eight (8) years after completion, and transfer the airport to the government at the end of Year 10. In exchange, the government pays Hermes Co. 2. P300 million per year in years 3 to 10. Hermes Co. makes the following estimates at the contract inception: Year Contract costs Stand-alone Selling Price Construction service 1 P400 million Forecast cost + 30% 2 P400 million Forecast cost + 30% Operation services 3-10 P10 million Forecast cost + 10% Compute for: a. Total transaction price b. Carrying amount of the asset recognized on the contract at the end of year 3 c. interest income over the term of the contract
Hermes Co., a private company, enters into a service concession arrangement whereby Hermes undertakes to build an airport for the government with a completion period of two (2) years, operate and maintain the airport for eight (8) years after completion, and transfer the airport to the government at the end of Year 10. In exchange, the government pays Hermes Co. 2. P300 million per year in years 3 to 10. Hermes Co. makes the following estimates at the contract inception: Year Contract costs Stand-alone Selling Price Construction service 1 P400 million Forecast cost + 30% 2 P400 million Forecast cost + 30% Operation services 3-10 P10 million Forecast cost + 10% Compute for: a. Total transaction price b. Carrying amount of the asset recognized on the contract at the end of year 3 c. interest income over the term of the contract
Chapter3: Income Sources
Section: Chapter Questions
Problem 88P
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Transcribed Image Text:Hermes Co., a private company, enters into a service concession arrangement whereby
Hermes undertakes to build an airport for the government with a completion period of two (2)
years, operate and maintain the airport for eight (8) years after completion, and transfer the
airport to the government at the end of Year 10. In exchange, the government pays Hermes Co.
2.
P300 million per year in years 3 to 10. Hermes Co. makes the following estimates at the
contract inception:
Year
Contract costs
Stand-alone Selling Price
Construction service 1
P400 million
Forecast cost + 30%
2
P400 million
Forecast cost + 30%
Operation services
3-10
P10 million
Forecast cost + 10%
Compute for:
a. Total transaction price
b. Carrying amount of the asset recognized on the contract at the end of year 3
c. interest income over the term of the contract
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