Question
Alderbank Builders signs a fixed-price contract on January 1, 2026 to build a community sports hall on the customer's land for $2,000,000. Because the hall is built on land the customer controls, the customer controls the work as it progresses, so revenue is recognised over time. Alderbank measures progress using costs incurred to date as a proportion of total expected costs.
| At December 31, 2026 | Amount |
|---|
| Costs incurred in 2026 (all paid in cash) | $600,000 |
| Estimated total contract costs | $1,500,000 |
| Amounts billed to the customer in 2026 (none yet collected) | $700,000 |
Required:
- 2026 Revenue — the revenue Alderbank recognises for 2026.
- Journal Entries — two December 31, 2026 summary entries: the costs incurred, and the revenue recognised. Use Cost of Sales, Cash, Accounts Receivable, Contract Asset and Revenue.
- Statement Impact — the combined effect of the two entries on the 2026 financial statements.
Statements in this challenge
- 2026 RevenueNumeric Answer
- Journal EntriesJournal Entry
- Statement ImpactStatement Impact
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IFRS 15 — Revenue from Contracts with Customers
Apply the five steps in order: identify the contract, identify the performance obligations, determine the transaction price, allocate it to the obligations, and recognise revenue as each is satisfied. Most errors come from skipping straight to the amount without first separating the obligations.
Common mistakes
- Recognising the full contract price on delivery when a distinct service obligation is still outstanding.
- Allocating the transaction price other than on relative stand-alone selling prices.
- Recognising revenue when cash is received rather than when control transfers.
Further readingIFRS 15: the five-step model