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Revenue Recognition On 1 January 201, Baker enters into a contract with a...

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Accounting

Revenue Recognition

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On 1 January 201, Baker enters into a contract with a customer to construct a specialised building for consideration of $2 million plus a bonus of $0.4 million if the building is completed within 18 months. Estimated costs to construct the building are $1.5 million. If the contract is terminated by the customer, Baker can demand payment for the costs incurred to date plus a mark-up of 30%. On 1 January 20X1, as a result of factors outside of its control, such as the weather and regulatory approval, Baker is not sure whether the bonus will be achieved. At 31 December 20X1, Baker is still unsure whether the bonus target will be met. Baker decides to measure progress towards completion based on costs incurred. Costs incurred on the contract to date are $1.0 million. Required: How should Baker account for this transaction in the year ended 31 December 201

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