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

question 44

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

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Definitions:

Fair Housing Act

A U.S. federal law established in 1968 to prohibit discrimination concerning the sale, rental, and financing of housing based on race, religion, national origin, or sex.

Hispanics

Term used to describe people with cultural ties to Spain or Spanish-speaking countries, especially those in Latin America.

Native Americans

The indigenous peoples of the United States, including both the mainland and the Native Alaskan communities.

Hyperghetto

A term used to describe extremely impoverished and segregated urban areas characterized by high levels of social isolation and economic deprivation.