Page 6 - 35. FR APRIL 22 MTP QP ANSWERS

respective face values.

(b) A contractor enters into a contract with a customer to build an asset for Rs. 1,00,000, with a

performance bonus of Rs. 50,000 that will be paid based on the timing of completion. The amount of the
performance bonus decreases by 10% per week for every week beyond the agreed-upon completion date.
The contract requirements are similar to those of contracts that the contractor has performed previously,
and management believes that such experience is predictive for this contract. The contractor concludes
that the expected value method is most predictive in this case.

The contractor estimates that there is a 60% probability that the contract will be completed by the
agreed-upon completion date, a 30% probability that it will be completed one week late, and a 10%
probability that it will be completed two weeks late.
Determine the transaction price (INDAS 115)

Question 5

(a) Company A expects to earn Rs. 15,000 pre-tax profit each quarter and has a corporate tax slab of 20
percent on the first Rs. 20,000 of annual earnings and 40 per cent on all additional earnings. Actual
earnings match expectations. Calculate the amount of income tax to be shown in each quarter. (INDAS
34)

(b) T Ltd. enters into a two-year contract for internet services with Customer C. C also buys a modem and a
router from T Ltd. and obtains title to the equipment. T Ltd. does not require customers to purchase its

modems and routers and will provide internet services to customers using other equipment that is
compatible with T Ltd.’s network. There is a secondary market in which modems and routers can be
bought or sold for amounts greater than scrap value.
Determine how many performance obligations does the entity T Ltd. have? (INDAS 115)

(c) Entity sells gym memberships for Rs. 7,500 per year to 100 customers, with an option to renew at a
discount in 2nd and 3rd years at Rs. 6,000 per year. Entity estimates an annual attrition rate of 50%
each year.
Determine the amount of revenue to be recognised in the first year and the amount of contract liability
against the option given to the customer for renewing the membership at discount. (INDAS 115)

(d) Mr. X is a domestic partner of Ms. Y. Mr. X has an investment in A Limited and Ms. Y has an
investment in B Limited.
(i) Examine when can a related party relationship is established, from the perspective of A Limited’s
financial statements.

(ii) Examine when can related party relationship is established, from the perspective of B Limited’s
financial statements.
(iii) Will A Limited and B Limited be related parties if Mr. X has only significant influence over A
Limited and Ms. Y also has significant influence over B Limited. (INDAS 24)

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