On 1 st April, 2023, Shivank Limited entered into a contract with Amey Limited to build an asset for consideration of 1,20,00,000 with a bonus of…

For the year 2023-2024 Shivank Limited accounts for the promised bundle of goods and services as a single performance obligation satisfied over time in accordance with Ind AS 115. At the inception of the contract, Shivank Limited expects the following: Transaction price -1,20,00,000 Expected costs - (₹ 71,00,000) Expected profit (40.83%) -49,00,000 At contract inception, Shivank Limited excludes - 35,00,000 bonus from the transaction price because it has been concluded that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will occur. Completion of the construction of asset is highly susceptible to factors outside the entity's influence. By the end of the first year, the entity has satisfied 60% of its performance obligation on the basis of costs incurred to date. Costs incurred to date are therefore - 42,60,000 and Shivank Limited reassesses the variable consideration and concludes that the amount is still constrained. Therefore at 31 st March 2024, the following would be recognised: Revenue (A) -72,00,000 (₹ 1,20,00,000 x 60%) Costs (B) - (₹ 42,60,000) (₹ 71,00,000 x 60%) Gross profit (C) i.e.(A-B) ₹ 29,40,000 For the year 2024-2025 On 30 th April 2024, the contract was modified. As a result, the fixed consideration and expected costs increase by - 15,50,000 and - 7,60,000, respectively. The total potential consideration after the modification is 1,70,50,000 [which is 1,35,50,000 (i.e. 1,20,00,000 + 15,50,000) fixed consideration +35,00,000 completion bonus]. In addition, the allowable time for achieving the bonus is extended by four months with the result that Shivank Limited concludes that it is highly probable that including the bonus in the transaction price will not result in a significant reversal in the amount of cumulative revenue recognised in accordance with Ind AS 115. Therefore, the bonus of35,00,000 can be included in the transaction price. Shivank Limited also concludes that the contract remains a single performance obligation. Thus, Shivank Limited accounts for the contract modification as if it were part of the original contract. Therefore, Shivank Limited updates its estimates of costs and revenue as follows: Shivank Limited has satisfied 54.20% of its performance obligation (₹ 42,60,000 actual costs incurred compared to 78,60,000 total expected costs). The entity recognises additional revenue of 20,41,100 [(54.20% of 1,70,50,000) -72,00,000 revenue recognised to date] at the date of modification i.e. on 30 th April 2024 as a cumulative catch-up adjustment.