How should AAA perform the accounting in the first year

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Point 1: AAA Ltd ("AAA") is in the business of construction. It has signed a two-year building contract in return for $5 million to construct a bridge. In the first year, the material costs incurred were $2 million and the other contract costs related to the construction incurred were $1 million. The estimated future costs of completion was not estimable by the end of the first year. Assume the firm uses the input method to measure percentage of completion, i.e. measures progress using costs incurred, and that the entity satisfies its obligation over time.

Question 1: How should AAA perform its accounting in its first year under FRS 115 Revenue from Contract with Customers?

Option A. The entity should recognise construction expenses of $2 million.

Option B. The entity should recognise construction revenue of $0 million.

Option C. The entity should recognise construction loss of $2 million.

Option D. None of the listed options.

Reference no: EM132489614

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