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  1. avatar says

    Hello,

    I have a question regarding the way revenue and receivables from the construction contract are recognised.
    We have $12000 in Revenue which goes into Profit & Loss, and yet the amount recorded in Receivables is $13400. I understand the basis for calculations however, where exactly is the rest of $1400 in the SOFP?

    Why revenue is credited by 12000 (40000*30%), and the receivables debited by $1400 more, $13400 (11000 materials and labour +3000 depreciation). Why isnt the same basis for calculation used in both cases, revenue and receivables? Again, the SOPA is balanced, yet how, where’s the $1400.

    Thank you

    • avatar says

      I managed to figure it out..

      Dr: Assets 9000
      Amount due (bal.fig.) 13400
      Cr: Construction contract (per tb) 20000 (-)
      Ret earning (profit) 2400 (+)

      Hopefully I got it right.. wasn’t complicated after all

  2. avatar says

    Good evening. Probably a silly question but in case of Dune point 4- goods with cost of $6m have been invoiced to customers at a gross profit of 25% on sales… If we use here PUP calculation, it would be 25/100*6m= $1.5m profit. If I add cost of $6m plus profit of $1.5m, sales come to $7.5m as opposed to $8m. Why is that? Thanks

    • Avatar of MikeLittle says

      @gabikar, Because if they are invoiced at a gross profit of 25% on sales, that means that the cost of the goods is 75% of the transfer price ie 75% of the value invoiced to the buying company.

      Try it! If your 1.5 was correct, the gross profit would be 1.5/7.5 = only 20%

      But if you put 2 as the profit, the pup fraction becomes 2 / 8 = 25%

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