A Company Has Commenced Work on a Non-Cancellable Fixed Price

question 28

Multiple Choice

A company has commenced work on a non-cancellable fixed price construction contract in the amount of $6 million.Costs of $4 million have been incurred to date, and it is expected that $3.2 million in additional costs will have to be incurred to complete the contract.The company adheres to IFRS.Which of the following statements with respect to the contract are correct?

• A)The company has a constructive obligation to accrue a loss of $1.2 million plus any previously recognized profit.
• B)This is an onerous contract, so the company must accrue a loss of $1.2 million plus any previously recognized profit.
• C)There is a constructive obligation to finish the contract.
• D)The company will have recognized $3 million in profit on the contract to date.

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Definitions:

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