Brick Ltd is a building construction company. On 1July 2017, Brick Ltd signed a contract with...

Brick Ltd is a building construction company. On 1July 2017, Brick Ltd signed a contract with Pear Ltd to build a factory. The contract price was $ 12,000,000. The relevant information is as follows:

Financial year ending 30 June:	Construction costs for year	Billings and payments for year
2018	$ 3,500,000	$ 3,000,000
2019	$ 5,000,000	$ 5,000,000
2020	$ 1,500,000	$ 4,000,000

Pear Ltd will be in control of the asset throughout the construction process. The contract is completed on 30 June 2020. Brick Ltd has a financial year ending 30 June. Assume that the actual costs and cash collections are in line with expectations and the stage of completion can be reliably estimated.

Required:

Calculate the total profit that will be recognised in the books of Brick Ltd for the year ended 30 June 2018, 2019 and 2020.

The profit that you have calculated in Part (a) above, is it based on input method or output method? Justify your answer based on AASB 15 “Revenue from Contracts with Customer

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Expert Solution

Explaination

Above calculated answer is based on the outflow method. As we consider our cost as outflow. Since we have calculated revenue based on the Percentage of completion ie. as much as contractor is completing the project, Revenue will be recognised in his books of accounts as per AASB 15 “Revenue from Contracts with Customer.

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