Page 22 - 19. COMPILER QB - INDAS 115

QUESTIONS PAST EXAM PAPERS

Q21. (MAY 19)
Orange Ltd. contracts to renovate a five star hotel including the installation of new elevators on 01.10.2017.

Orange Ltd. estimates the transaction price of Rs.480 lakh. The expected cost of elevators is Rs. 144 lakh and
expected other costs is Rs.240 lakh. Orange Ltd. purchases elevators and they are delivered to the site six
months before they will be installed. Orange Ltd. uses an input method based on cost to measure progress
towards completion. The entity has incurred actual other costs of Rs. 48 lakh by 31.03.2018.

st
How much revenue will be recognised as per relevant Ind AS 115 for the year ended 31 March, 2018,
if performance obligation is met over a period of time?
SOLUTION

Cost to be incurred comprises two major components – cost of elevators and cost of construction service.
(a) The elevators are part of the overall construction project and are not a distinct performance obligation
(b) The cost of elevators is substantial to the overall project and are incurred well in advance.
(c) Upon delivery at site, the customer acquires control of such elevators.

(d) There is no modification done to the elevators, which the company only procures and delivers at site.
Nevertheless, as part of materials used in overall construction projects, the company is a principal in
the transaction with the customer for such elevators also.
Therefore, applying the guidance on Input method –
- The measure of progress should be based on the percentage of costs incurred relative to the total

budgeted costs.
- The cost of elevators should be excluded when measuring such progress & revenue for such elevators
should be recognized to the extent of costs incurred.

The revenue to be recognized is measured as follows:

Particulars Amount (Rs. in
lakh)
Transaction price 480
Costs incurred:
(a) Cost of elevators 144
(b) Other costs 48
Measure of progress 48 / 240 = 20%

Revenue to be recognised: (Rs. in lakh)
(a) For costs incurred (other Total attributable revenue = 480 -144 = 336 % of work
than elevators) completed=20%Revenue to be recognised =67.20

(b) Revenue for elevators (equal to costs incurred) 144
Total revenue to be recognised
144 + 67.2 = 211.20
st
Therefore, for the year ended 31 March, 2018, the company shall recognize revenue of Rs. 211.20 lakhs on the
project.

19. 21