On September 1, 20x1, ABC Co. enters into a contract with a customer to remodel a plant's electrical wirings and install a new generator for a total consideration of P12. The remodeling and the installation are treated as a single performance obligation satisfied over time. The expected contracts costs are as follows: Generator 4,000,000 Other costs 5,000,000 Expected total contract costs 9,000,000 Additional information: ABC Co. uses the cost-to-cost method in measuring its progress towards the complete satisfaction of the performance obligation. ABC Co. incurs total costs of P6,000,000 in 20x1, including the cost of the generator. The customer obtains control of the generator when it is delivered to the site in December 20x1. However, the generator will not be installed until March 20x2. ABC Co. regards the cost of the generator as significant in relation to the expected total contract costs (i.e., 4M ÷ 9M = 44.44%). Although ABC Co. acted as a principal in procuring the generator, ABC Co. is not involved in designing or manufacturing the generator. The profit in 20x1 is

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 19RE

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On September 1, 20x1, ABC Co. enters into a contract with a customer to remodel a plant's electrical wirings and install a new generator for a total consideration of P12. The remodeling and the installation are treated as a single performance obligation satisfied over time. The expected contracts costs are as follows: Generator 4,000,000 Other costs 5,000,000 Expected total contract costs 9,000,000 Additional information: ABC Co. uses the cost-to-cost method in measuring its progress towards the complete satisfaction of the performance obligation. ABC Co. incurs total costs of P6,000,000 in 20x1, including the cost of the generator. The customer obtains control of the generator when it is delivered to the site in December 20x1. However, the generator will not be installed until March 20x2. ABC Co. regards the cost of the generator as significant in relation to the expected total contract costs (i.e., 4M ÷ 9M = 44.44%). Although ABC Co. acted as a principal in procuring the generator, ABC Co. is not involved in designing or manufacturing the generator. The profit in 20x1 is

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