Question 1) Seals Development Limited currently has two construction contracts. The contracts involve the construction of a hospital at Fairview, Montego Bay and a new hotel in Freeport. The new hospital will cater for residents of Bogue, Catherine Hall and Lagoons. Meanwhile, the hotel is expected to facilitate business travellers into the western city.

However, management is unaware with regard to when revenue, cots and profits from the contracts

are to be recognized. Nevertheless, based on the construction industry as well as entity's

accounting policies, the outcome of a contract cannot be estimated reliably until a contract is at

least 10% complete. Below are information relating to both contracts for the year ended December

31, 2016

Hospital Hotel

Contract Price $100,000,000 $400,000,000

Cost Incurred to date $20,000,000 $20,000,000

Estimated cost to complete $30,000,000 $280,000,000

Progress Billing $25,000,000 $10,000,000

Cash received $18,000,000 $15,000,000

The company uses the cost incurred to date to determine the projects' level of completion. The

company recognised revenues and cost on the hospital amounting to $6,000,000 and $5,000,000

for the year ended December 31, 2015. Management indicates that contract costs incurred are

probable of being recovered.

Required:

a) Prepare an extract of the statement of profits or loss to recognize contract revenue,

cost and profits for the year ended December 31, 2016 (11 marks)

b) Prepare an extract of the statement of financial position as at December 31, 2016

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