IAS 11 Construction Contracts Example 3

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  1. Avatar of crye crye says:
    May 12, 2013 at 6:32 am

    It’s said losses expected should be recorded even if contract hasn’t bugun.

    But why would anyone even need to go that far, like … a commercial entity embarking on a loss venture?? Why?

    • Avatar of crye crye says:
      May 12, 2013 at 6:33 am

      ‘bEgun’

    • Avatar of Sangria9 Sangria9 says:
      May 12, 2013 at 6:55 am

      Maybe the seller wants “to receive” this buyer by performing current contract for low price and hoping that in future buyer will bring more profits in another contracts.

    • Avatar of Sangria9 Sangria9 says:
      May 12, 2013 at 6:58 am

      Or maybe next situation. Contract is signed with profit, but lately something changed (for example seller’s equipment damaged) and new expenses occur (seller know exactly that to start works under this contract he need to purchase new equipment or repair old) and seller can’t avoid performing contract (maybe penalties will much more higher than expected losses)..

  2. Avatar of fidahussain fidahussain says:
    April 21, 2013 at 12:25 pm

    hi
    can any one explain how we got 750 in statement of comprehensive income in eg 5 ch13 plz

  3. Avatar of fidahussain fidahussain says:
    April 21, 2013 at 12:22 pm

    HI
    CAN any one explain how we got 750 in year 2 in statement of comprehensive income eg 5 ch 13 plz

  4. Avatar of eadinnu eadinnu says:
    April 9, 2013 at 5:51 pm

    Good day Mike,

    I need clarification. In the event of a loss, the total loss is recognised immediately. In example 4, the Cost recognised was the balancing figure whereas the Revenue recognised was worked out based on the percentage completed.

    An example in Kaplan instead gave the Revenue recognised as the balancing figure and worked out the Cost recognised with the percentage completed.

    Are they accepted alternative ways of treating this situation?

  5. Avatar of Akis Akis says:
    April 9, 2013 at 10:37 am

    Hi Mike! Could you explain the presentation in the SFP when we have both amounts due to customers and from customers? Do we demonstrate separate lines in current assets and liabilities or we present one line depending on the total difference ?

  6. Avatar of 1992825amaar 1992825amaar says:
    December 28, 2012 at 3:28 pm

    In Example 5 working 2 (W2) why using $140 loss in year 2 instead of the $160 from income statement (w1)??

    • Avatar of MikeLittle MikeLittle says:
      December 28, 2012 at 4:10 pm

      @1992825amaar, The 140 loss is the figure to be recognised by THE END of year 2. But we have already recognised 20 profit in year 1. So, in order that 140 loss should be recognised by the end of year 2, we need to recognise 160 loss in year 2 to give us 140 cumulative by end year 2.

      Better?

  7. Avatar of chenchen chenchen says:
    November 1, 2012 at 9:38 pm

    hi Mike

    in year 1 we calculated the costs (300+500) by 30% stage of completion. Why did we not do the same in year 2, multiply the costs (600+500) by 65%?

    • Avatar of MikeLittle MikeLittle says:
      November 2, 2012 at 6:31 am

      @chenchen, Because a loss is forecast and that loss should be recognised in full in the year in which it is forecast.

      Therefore, we can determine the revenue figure ( 65% x 1 million ) and we know the forecast loss by simple calculation. Therefore the costs to be recognised becomes the missing figure

      OK?

  8. Avatar of kimcap28 kimcap28 says:
    October 5, 2012 at 10:49 pm

    In example 5 page 75-how is the 510,000 in general cost shown in the year 2 income statement calculated….somehow I am not following that bit.

    • Avatar of MikeLittle MikeLittle says:
      October 6, 2012 at 11:22 am

      @kimcap28, Because, in the situation where an overall loss is forecast, the loss must be recognised in full in the year you realise that a loss will be suffered.

      In order to recognise the loss in full, the bottom line of working 1 must be completed immediately after the first line. So, now we have a figure for revenue and a figure for loss recognised. The missing figure of 510,000 is therefore the value of the costs to be recognised

      Better?

  9. Avatar of claudia1 claudia1 says:
    October 5, 2012 at 8:21 am

    Hi Mike…the 50 which is yet to be billed, is an asset to be included in the SOFP…..current asset! Can you confirm please???

    • Avatar of MikeLittle MikeLittle says:
      October 5, 2012 at 11:18 am

      @claudia1, Hi

      Yes, that is correct. I suppose possibly it COULD be a deferred asset to be invoiced after, say, 2 years – if that’s what the contract says. But, when I wrote the question, it was intended that it was a current asset

  10. Avatar of noldis noldis says:
    June 3, 2012 at 2:56 pm

    Good example, however I still don’t have complete understanding why unbilled amounts and A/R has the same name ” Amounts due from/to customers” :)

  11. Avatar of sdehnjo sdehnjo says:
    May 19, 2012 at 10:02 pm

    i understand and could apply this in a 11/2hr by the way am home studying with f7 so this is my only source of help and you guys are doing a great job

  12. Avatar of mdadil mdadil says:
    April 19, 2012 at 12:13 pm

    what about the additional costs for the constructor 150,000 ?

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