Party gets into a long term construction contract to prepare the machinery which takes 2 years to complete
Cost elements – Labor $ 3mm and Materials $ 5mm Total $ 8mm
Revenue against – Labor $ 10mm and Materials $ 10mm Total $ 20mm
Margin – Labor 70% Material 50% on total project 60%
Year 1 Cost incurred Labor $ 4mm and Material $ 2mm
What should be the revenue that can be recognized against the same? The policy is % completion method.
Business contention to recognize revenue on 70 and 50% margins respectively.
What the point of contention is can the revenue at any stage go beyond the average contribution of the project.
Please provide ref to the IFRS or any other literature.