The entity Quercus Inc. is a construction company that reports its financial statements according to IFRS. The Quercus Inc. enters into a contract with its customer, the entity Tilia Inc., to build a power plant near the city of Hongkong. Construction work starts on January 1, 20X0 and is completed on June 30, 20X4. The Quercus Inc. incurs total costs of EUR 400,000. The Tilia Inc. has to pay a fixed amount of EUR 700,000 for the construction of the power plant.
Your Task: The fact pattern above only includes some basic information, but it is not complete. Your task is to complete the fact pattern. In doing so, you should create two different scenarios. In scenario 1, the Quercus Inc. should recognise revenue during the construction period in accordance with IFRS 15. In scenario 2, the Quercus Inc. should recognise revenue as late as possible in accordance with IFRS 15.
Make sure that both of the scenarios are based on the information given in the fact pattern and to include all the additional information that is necessary to solve the fact pattern (e.g., information about the method used to measure progress, information to determine the timing of revenue recognition, etc). Do not forget to include the amount and timing of revenue recognition and the corresponding booking records and provide explanations for your answers!
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