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:

Monetary Policy

Actions undertaken by a central bank, such as the Federal Reserve, to control the money supply and interest rates to achieve macroeconomic objectives like controlling inflation, consumption, growth, and liquidity.

Federal Open Market Committee

The branch of the Federal Reserve System responsible for setting national monetary policy and interest rates.

Reserve Requirement

The minimum amount of deposits that a bank must hold in reserve and not lend out, which is set by the central bank as a means to control the money supply.

Open-Market Sales

Transactions where central banks sell securities in the open market to control the supply of money.