ACCA FR · Chapter 5 · Question 5 of 11
Raven Co has a contract that satisfies its performance obligation over time. Progress is measured by costs incurred as a proportion of total expected costs. The contract price is $10,000,000, costs to date are $4,000,000 and estimated costs to complete are $4,000,000. Raven Co has invoiced the customer $4,500,000, of which $4,000,000 has been received. What contract balance (excluding the trade receivable) should appear in the statement of financial position?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Contract asset of $500,000
Explanation
Progress = $4,000,000 / ($4,000,000 + $4,000,000) = 50%. Revenue to date = $10,000,000 x 50% = $5,000,000. Revenue recognised exceeds amounts invoiced by $5,000,000 - $4,500,000 = $500,000, which is a contract asset. The $500,000 invoiced but not received is a trade receivable, shown separately.
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