CA. P wants other members to guide him how the variable consideration on the basis of inputs provided in the case study will be recognized during…

The members of the group suggested CA. P, the evaluation of the impact of changes in variable consideration as per Indian Accounting Standard 115 as under: (Amount in ₹) Fixed Consideration A 12,00,000 Estimated Costs to Complete B 11,20,000 Total Estimated Variable Amount C Year 1 Year 2 Year 3 Year 4 Year 5 2,40,000 2,40,000 2,40,000 6,00,000 6,00,000 Fixed Revenue D=A x H/B 64,286 2,14,285 5,35,714 3,21,429 64,286 Variable Revenue E=C x H/B 12,857 42,857 1,07,143 1,60,714 32,143 Cumulative revenue adjustment F (see below) — — — 2,46,429 — Total Revenue G=D+E+F 77,143 2,57,142 6,42,857 7,28,572 96,429 Costs H 60,000 2,00,000 5,00,000 3,00,000 60,000 Operating Profit I=G-H 17,143 57,142 1,42,857 4,28,572 36,429 Margin (rounded off)* J=I/G 22% 22% 22% 59% 38% *Computation of margin in percentage has been rounded off to absolute figure. Note: For simplicity, it is assumed there is no change to the estimated costs to complete throughout the contract period. In practice, under the cost-to-cost measure of progress, total revenue for each period is determined by multiplying the total transaction price (fixed and variable) by the ratio of cumulative cost incurred to total estimated costs to complete, less revenue recognized to date. Calculation of Cumulative Catch-up Adjustment: (Amount in ₹) Updated variable consideration L 6,00,000 Percentage complete in Year 4 (rounded off) M=N/O 95%* Cumulative costs till Year 4 (60,000+2,00,000+5,00,000+3,00,000) N 10,60,000 Estimated costs to complete O 11,20,000 Cumulative variable revenue till Year 4 P 3,23,571 Cumulative catch-up adjustment F= (L x M)-P 2,46,429 *Computation of percentage of completion in year 4 has been rounded off to absolute figure.