Hillier Construction Ltd commenced the construction of a building on 1 July 2013.It has a fixed-price contract for total revenues of $45 million.The expected completion date is 30 June 2016.The expected total cost to Hillier Construction at the beginning of the project is $35 million.The following information relates only to the construction of this building: \[\begin{array} { | l | r | r | r | } \hline \text { For the year ending } 30 \text { June } & \begin{array} { r } 2014 \\ ( \$ 000 ) \end{array} & \begin{array} { r } 2015 \\ ( \$ 000 ) \end{array} & \begin{array} { r } 2016 \\ ( \$ 000 ) \end{array} \\ \hline \text { Costs for the year } & 12500 & 15000 & 10000 \\ \hline \text { Costs incurred to date } & 12500 & 27500 & 37500 \\ \hline \text { Estimated costs to complete } & 23000 & 8500 & - \\ \hline \text { Progress billings during the year } & 10000 & 12000 & 23000 \\ \hline \text { Cash collected during the year } & 10000 & 11000 & 24000 \\ \hline \end{array}\] Hillier Construction uses the percentage-of-completion method based on cost to account for its construction contracts.What are the journal entries for the year ended 30 June 2014 (rounded to the nearest $000)?

A) \[\begin{array} { | l | l | r | r | } \hline & & \$ 000 & \$ 000 \\ \hline \mathrm { Dr } & \text { Construction expenses } & 12500 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 12500 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 10000 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction in progress } & 3345 & \\ \hline \mathrm { Cr } & \text { Gross profit on construction contract } & & 3345 \\ \hline \end{array}\] B) \[\begin{array} { | l | l | r | r | } \hline & & \$ 000 & \$ 000 \\ \hline \mathrm { Dr } & \text { Construction in progress } & 12500 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 12500 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 10000 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction in progress } & 3571 & \\ \hline \mathrm { Dr } & \text { Construction expenses } & 12500 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 16071 \\ \hline \end{array}\] C) \[\begin{array} { | r | l | r | r | } \hline & & \$ 000 & \$ 000 \\ \hline \mathrm { Dr } & \text { Construction in progress } & 12500 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 12500 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 10000 & \\ \hline \mathrm { Cr } & \text { Billings on construction in progress } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction in progress } & 3345 & \\ \hline \mathrm { Dr } & \text { Construction expenses } & 12500 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 15845 \\ \hline \end{array}\] D) \[\begin{array} { | l | l | r | r | } \hline & & \$ 000 & \$ 000 \\ \hline \mathrm { Dr } & \text { Construction in progress } & 12500 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 12500 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 10000 & \\ \hline \mathrm { Cr } & \text { Billings on construction in progress } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction expenses } & 12500 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 12500 \\ \hline \end{array}\] A) \[\begin{array} { | l | l | r | r | } \hline & & \$ 000 & \$ 000 \\ \hline \mathrm { Dr } & \text { Construction expenses } & 12500 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 12500 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 10000 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction in progress } & 3345 & \\ \hline \mathrm { Cr } & \text { Gross profit on construction contract } & & 3345 \\ \hline \end{array}\] B) \[\begin{array} { | l | l | r | r | } \hline & & \$ 000 & \$ 000 \\ \hline \mathrm { Dr } & \text { Construction in progress } & 12500 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 12500 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 10000 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction in progress } & 3571 & \\ \hline \mathrm { Dr } & \text { Construction expenses } & 12500 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 16071 \\ \hline \end{array}\] C) \[\begin{array} { | r | l | r | r | } \hline & & \$ 000 & \$ 000 \\ \hline \mathrm { Dr } & \text { Construction in progress } & 12500 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 12500 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 10000 & \\ \hline \mathrm { Cr } & \text { Billings on construction in progress } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction in progress } & 3345 & \\ \hline \mathrm { Dr } & \text { Construction expenses } & 12500 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 15845 \\ \hline \end{array}\] D) \[\begin{array} { | l | l | r | r | } \hline & & \$ 000 & \$ 000 \\ \hline \mathrm { Dr } & \text { Construction in progress } & 12500 & \\ \hline \mathrm { Cr } & \text { Materials, cash, etc. } & & 12500 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Accounts receivable } & 10000 & \\ \hline \mathrm { Cr } & \text { Billings on construction in progress } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Cash } & 10000 & \\ \hline \mathrm { Cr } & \text { Accounts receivable } & & 10000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Construction expenses } & 12500 & \\ \hline \mathrm { Cr } & \text { Revenue from long-term contract } & & 12500 \\ \hline \end{array}\]

Exam 15: Revenue Recognition Issues

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The following journal entries were recorded by a vendor who sold goods and received promissory notes on 1 July 2012 in exchange. What is the interest rate implicit in the arrangement?

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Question 59

When the outcome of a construction contract can be estimated reliably,contract revenue and contract costs associated with the construction contract shall be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date.

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Question 60

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Exam 15: Revenue Recognition Issues

The following journal entries were recorded by a vendor who sold goods and received promissory notes on 1 July 2012 in exchange. What is the interest rate implicit in the arrangement?

Biological assets are:

Interest revenue is derived from borrowing resources from another entity.

When it is probable that total contract costs will exceed total contract revenue,the expected loss should not be recognised as an expense until the future economic sacrifice eventuates.

In most cases dividend revenue should not be recognised until the dividend proposed has been ratified by the shareholders at the annual general meeting.

Construction costs plus gross profit earned to date from a construction contract are accumulated in the construction in progress account less progress billings and these are disclosed in the liability section of the statement of financial position.

When the collectability of an amount that has been recorded as revenue becomes uncertain,the appropriate accounting treatment is to:

Under the AASB (IASB)Conceptual Framework income is now subdivided into:

IASB (2011)requires an entity to recognise revenue for a performance obligation satisfied over time only if the entity can:

When the gross method is used to record the interest inherent in a sales transaction,it is typical for the accrued interest to be offset against the note receivable.

Discuss the different conditions detailed in IASB (2011)that must be satisfied before the percentage-of-completion method can be used.

IASB (2011)requires revenues to be measured in terms of historical cost to improve reliability.

Discuss how the use of call and put options affect revenue recognition for sales of merchandise with associated conditions.

When a performance obligation is satisfied,an entity shall recognise revenue:

Revenue recognition under IASB (2011)requires that:

In accordance with IASB (2011)discuss the five steps to recognising revenue.

When the outcome of a construction contract can be estimated reliably,contract revenue and contract costs associated with the construction contract shall be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date.

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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