ZEN Ltd signs a contract on 30 June 2019, agreeing to build a bridge for XYN at a contract price of $20 million. XYN will be in control of the asset throughout the construction process. ZEN estimates that construction costs will be as follows: Year Ending Cost 30th June 2020 $ 5,000,000 30th June 2021 $ 8,000,000 30th June 2022 $ 3,000,000 Total $16,000,000 The contract provides that XYN will make payments on 30 June of each year as follows: 2020 $ 4,000,000 2021 $ 10,000,000 2022 $ 6,000,000 Total $20,000,000 The contract is completed as expected on 30 June 2022. Assume that actual costs and cash collections with expectations and that cost (an input measure) is used as the basis for assessing progress on the car contract. Required: (a) Calculate the income and gross profit recognised each year 2020, 2021, 2022. (b) Prepare the journal entries for the year ended 30th June 2020
ZEN Ltd signs a contract on 30 June 2019, agreeing to build a bridge for XYN at a contract price of $20 million. XYN will be in control of the asset throughout the construction process. ZEN estimates that construction costs will be as follows:
Year Ending Cost
30th June 2020 $ 5,000,000
30th June 2021 $ 8,000,000
30th June 2022 $ 3,000,000
Total $16,000,000
The contract provides that XYN will make payments on 30 June of each year as follows:
2020 $ 4,000,000
2021 $ 10,000,000
2022 $ 6,000,000
Total $20,000,000
The contract is completed as expected on 30 June 2022. Assume that actual costs and cash collections with expectations and that cost (an input measure) is used as the basis for assessing progress on the car contract.
Required:
(a) Calculate the income and gross profit recognised each year 2020, 2021, 2022.
(b) Prepare the
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