Question

Chong Berhad is a construction company. On 1 January 2019, Chong Berhad has entered into a construction contract for the construction of a warehouse with a customer whereby the customer pays an initial deposit of 30%. The construction work is estimated to be completed on December 31, 2021. The deposit is refundable only if Chong Berhad fails to complete the construction of the warehouse. The remainder is payable on delivery of the property. If the customer defaults on the contract prior to completion, Chong Berhad has the right to retain the deposit. The managing director Mr Tan believes that, as completion of the warehouse is performed over time, revenue should be recognised accordingly. He has persuaded the accountant to include the deposit and a percentage of the remaining balance for construction work in revenue to date.

Required:- In accordance with Malaysian Financial Reporting Standards (MFRS) 15 Revenue from Contracts with Customers, discuss whether revenue arising from the sales contract should be recognised on a stage of completion basis. Your answer should included the underlying principle of MFRS 15. [8 marks]

Answer 1