1. avatar says

    Hi Mike,

    Can you explain the (a) accounting treatment & the (b) impact on the % of completion of the project for:
    (1) Contract variation (ie Addition of a retractable roof of a project)
    (2) Error costs made by (2.a) the sub-contractor (ie engineer) or by the (2.b) contractor

    Hoping for your response.



    • Profile photo of MikeLittle says

      For something as substantial as a retractable roof variation ….. at what stage of the main contract was the roof variation agreed? In practical terms I can only imagine that such a variation would result in “start again”!

      It must surely affect the engineering of the walls of the sub-structure (a stadium?)

      IF it doesn’t have that affect on the main contract but can simply be added on, then the original contract value is increased and the percentage completed calculation will be correspondingly affected

      Re error costs – if it’s an error by the engineer – I can only hope that he has good insurance. An error by a structural engineer would tend to have major financial implications. I’m thinking of recent disasters – a supermarket in Latvia, a bridge in Brazil, numerous buildings in China

      Errors by the contractor – it seems to me when I read about this type of disaster that the contractor and the engineer both very quickly leave the scene and are never heard of again – basically, they run away!

      However, on the assumption that they don’t run away, the engineer will be covered by insurance and the contractor, if solvent, will have to pay any additional costs himself

      Does that answer it?

    • Profile photo of MikeLittle says

      Amount invoiced is ……. the amount invoiced! In other words it is the amount of money received plus any outstanding invoices sent.

      The difference between “amounts due from customers” in working 2 and “amounts due from customers” in working 3 is the nature of the customers’ obligation.

      In working 2, the amount is by nature “unbilled work in progress” whereas in working 3 the amount is by nature an account receivable


    • Profile photo of acuteacca says

      @tiamaria, dear first take the third lecture of this chapter then attempt past exams or revision kit if you have difficulties then compare it with your written lecture and if further guidance required then compare with answers of questions if
      more guidance required then reply to my comment and i will solve your problem!!

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