Chapter 13

Accounting for Build-operate-transfer (BOT)

PROBLEM 13-1: TRUE OR FALSE

1. FALSE 6. TRUE
2. TRUE 7. TRUE
3. FALSE 8. TRUE
4. FALSE 9. FALSE
5. TRUE 10. FALSE

PROBLEM 13-2: THEORY & COMPUTATIONAL

1. D

2. D

3. D

4. B

5. A

6. C
Solution: (15M construction costs x 120%) = 18M

7. C
Solution: (5M operation costs x 105%) = 5.25M

8. B

9. D

10. C
Solution: (15M construction costs x 120%) = 18M

11. D
Solution: 20M, the fees collected from railway users

12. C
Solution:
Total construction costs (15M x 2 yrs.) 30
Multiply by: 120%
Initial carrying amount of intangible asset 36
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Multiply by: (7 / 8) (a) 7/8
Carrying amount of intangible asset at the end of Year 3 31.50

(a)Denominator in the fraction: The intangible asset’s useful life is 8

years, i.e., Years 3 to 10 where the operator can exercise its right to
collect fees from railway users.

Numerator in the fraction: Amortization starts in Year 3 when the

operator obtains ability to exercise its rights. Thus, at the end of Year
3, the remaining useful life of the intangible asset is 7 years.

PROBLEM 11-3: EXERCISES

1. A

2. B
Solution:
Int. Amorti-
Date Collections Revenue PV
income zation
b = PV x e = prev.
a c=a-b d
9.10% bal. - c + d
1/1/Yr. 1 -
12/31/Yr.1 - - - 520 520
12/31/Yr.2 - 99 (99) 520 1,139
12/31/Yr.3 300 218 82 11 1,068

The revenues are computed as follows:

Year Performance obligation Revenues
Year 1 Construction services (400M x 130%) 520
Year 2 Construction services (400M x 130%) 520
Year 3 Operation services (10M x 110%) 11

3. C
Solution:
Year 2 Year 3
Revenue 520 11
Contract costs (400) (10)
Interest income 99 218
Profit 219 219

4. C (See solution in preceding question.)

5. B

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6. D

7. D

8. B
Solution:
Yr. 1 Construction services (400M x 130%) 520
Yr. 1 Borrowing costs (100M x 10%) 10
Yr. 2 Construction services (400M x 130%) 520
Yr. 2 Borrowing costs (100M x 10%) 10
Carrying amt. of intangible asset at the end of Yr. 2 1,060
Amortization expense in Year 3 (132.5)
Carrying amt. of intangible asset at the end of Yr. 3 927.50

The amortization expense is computed as follows (1,060 ÷ 8 = 132.5).

9. B
Solution:
Year 2 Year 3
Revenue 520 300
Contract costs (400) (10)
Amortization expense (132.50) (132.50)
Interest expense - (10)
Profit (Loss) (12.50) 148

10. A (See solution in preceding problem)

PROBLEM 13-4: CLASSROOM ACTIVITY

1. FALSE
2. TRUE
3. TRUE
4. FALSE
5. FALSE
6. FALSE
7. FALSE
8. TRUE
9. TRUE
10. A
11. C
12. C
13. B
14. D
15. C

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PROBLEM 13-5: THEORY
1. D 6. D
2. B 7. C
3. C 8. B
4. C 9. A
5. E 10. B