Question
In: Accounting
MASLI Islamic Bank entered into an Istisna' contract with Pembinaan Berhad to build a factory in...
MASLI Islamic Bank entered into an Istisna' contract with Pembinaan Berhad to build a factory in Ipoh, Perak for RM500,000, to be completed in 2 years.Total costs is RM400,000 (including pre contract cost of RM 25,000). Additional detail information as follows:
Year 1 Year 2
Cumulative costs incurred 300,000 400,000
Billings 280,000 220,000
Collections from purchaser(almustasni)230,000 270,000
Required:
Journalise the above said transactions pertaining to the above istisna' assuming the bank adopts the percentage completion method.
Solutions
Expert Solution
| Percentage completion method | Year 1 | Year 2 | |
| Cost incurred in till previous year | 0 | 300000 | |
| ADD | Cost incurred during the year | 300000 | 100000 |
| Total cost incurred till date | 300000 | 400000 | |
| ADD | Estimated cost to be incurred | 100000 | 0 |
| Total estimated cost to be incurred | 400000 | 400000 | |
| Percentage of completion (A) | 75% | 100% | |
| (cost incurred till date /total estimated cost ) | |||
| Total revenue (B) | 500000 | 500000 | |
| Total revenue recognized (A *B) | 375000 | 500000 | |
| Less | Revenue recognized in previous year | 0 | 375000 |
| revenue recognized in current year | 375000 | 125000 | |
| Year 1 | Year 2 | ||
| Revenue | 375000 | 125000 | |
| Less | Cost incurred | 300000 | 100000 |
| Gross profit | 75000 | 25000 | |
| Year 1 | |||
| 1 | Construction in progress | 300000 | |
| Accounts payable | 300000 | ||
| 2 | Contracts receivable | 280000 | |
| Progress billings | 280000 | ||
| 3 | Construction in progress | 75000 | |
| Construction expense | 300000 | ||
| Construction revenue | 375000 | ||
| 4 | Cash | 230000 | |
| Contract receivable | 230000 | ||
| Year 2 | |||
| 1 | Construction in progress | 100000 | |
| Accounts payable | 100000 | ||
| 2 | Contracts receivable | 270000 | |
| Progress billings | 270000 | ||
| 3 | Construction in progress | 25000 | |
| Construction expense | 100000 | ||
| Construction revenue | 125000 | ||
| 4 | Cash | 270000 | |
| Contract receivable | 270000 | ||
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