a. IPC purchases real estate in prime locations where an existing theatre chain does not adequately serve the market. After purchasing the real estate, IPC engages a contractor to build a theatre complex. During fiscal 2009, IPC received a $2,000,000 payment from a contractor who had built a theatre complex in Montreal. The payment represents a penalty for not completing the theatre complex on time. Construction began in February 2008 and was to have been completed by October 2009. Instead, the complex will not be completed until the end of May 2010.

Question

What is the accounting issue present above?

Answer 1

The accounting issue present in the scenario is related to the recognition and treatment of the $2,000,000 payment received from the contractor as a penalty for not completing the theatre complex on time.