Reference no: EM132513026

1. A company enters into a contract to construct an asset for a customer. The agreed price is £500,000 and the specified delivery date is 30 September 2018. However, if the asset is delivered after this date, the company will suffer a late delivery penalty of £20,000 for each week between 30 September 2018 and the actual date of delivery.

• The company estimates that the probability of the asset being delivered on time is 80%. But there is a 10% probability that the asset will be delivered one week late and a further 10% probability that the asset will be delivered two weeks late.

2. A company which is building an asset for a customer will receive an incentive bonus of £100,000 if the asset is completed by the end of 2018. However, this bonus will not be paid if the completion date is any later than this (even by a single day).

• The bonus is in addition to the agreed price of £1m and the company estimates the probability of completion by the end of 2018 to be 95%.

Required:

Question 1: Determine the transaction price for each of the contracts under IFRS 15