Question

Marle Construction enters into a contract with a customer to build a warehouse for $950,000 on March 30, 2018 with a performance bonus of $50,000 if the building is completed by July 31, 2018. The bonus is reduced by $10,000 each week that completion is delayed. Marle commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:

Completed by	Probability
July 31, 2018	65%
August 7, 2018	25%
August 14, 2018	5%
August 21, 2018	5%

a - The transaction price, using “probability weighted method “for this transaction is ?

b - The transaction price, using “Most Likely Outcome “for this transaction is ?

Answer 1

a.)	Probability Weighted
		Amount in $	Working
	July 31, 2018	650,000	(950,000 + 50,000) x 65%
	August 7, 2018	247,500	(950,000 + 40,000) x 25%
	August 14, 2018	49,000	(950,000 + 30,000) x 5%
	August 21, 2018	48,500	(950,000 + 20,000) x 5%
	Total	995,000
	Transaction price	$ 995,000
b.)	Most Likely
	Entity concludes that it is probable (65% ) that the project will be finish by July 31,2018, hence it is most likely that projected will completed & full bonus will be claimed .
	Hence,Transaction price is	$ 1000,000	(950,000 + 50,000 )