Answer:
b. Recognized $12.37 million gross profit on the project in 2018.
Explanation:
IFRS-15 that deals with Revenue from Construction Contracts requires companies to follow a 4-step approach to record entries for contract when the performance obligation is satisfied over a period of time. These steps are:
1) Calculate the overall profit
Contract Price - Total Costs ( Incurred + Estimated)
⇒ 161 - 122 (40 + 82) = $39 million.
2) Determine the progress of the contract
(Cost to date / Total cost) * 100
⇒ (40 / 122) * 100 = 32.79%
3) Statement of Profit or Loss (If Profitable)
Revenue (Total Price * Progress) ; (161 * .3279) $52.79
Cost of Sale (Total costs * Progress) ; (122 * .3279) (40)
Gross Profit $12.79
The difference arises of $.42 million is because of rounding, ignore it. We choose the closest option in MCQs, always remember this.
Note: Step 4 is related to Balance Sheet which is not the requirement of this question, so skipped.
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