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Hello…
In the examiners answers he did the following with regard to estimated profit and contract costs incurred.
Plant depreciation (8,000 x 24/48 months) (4,000)
Plant depreciation (8,000 x 15/48 months) 2,500
Why did he multiply by 24/48 months?
Why did he multiply by 15/48 months?
How did he get 48 months?Thanks! 🙂
48 months is the very easy bit of your post – the asset has a 4 year life and depreciation is charged on a month by month basis. There are 12 months in a year and the asset has an estimated 4 year life, hence 48
The asset is going to be used for two years on this contract (that’s for half the useful life of the asset) hence 24/48 depreciation attributable to this contract to be included as part of the overall contract costs.
The asset was acquired in 1 January, 2010 and the accounting period that we are looking at is ended on 31 March, 2011 – a period of 15 months and hence 15/48 of the cost of the asset has been used up by 31 March, 2011
Ok?
Hello… I now understand that question but I’m having a bit of problem with Dec 2012 #4 (b).
This is what I did.
Expected profit= $50 ($250-$200)
Stage of completion based on the sales basis= 64% (160/250*100)
SOPOL figures:
Revenue $160 (64%* $250)
COS ($128) (64% * 200)
Profit $32SOFP figures:
Gross amounts due “to”/”from” customers is based on whether we have a Dr or Cr balance on the Contract a/c.Contract a/c
Costs incurred 145 DR
Revenue 160 DR
Progress billings 160 CR
COS 128 CR
Balance 17 DR
Therefore under current assets we will have gross amounts due “from” customers under construction contracts.Receivables a/c
Progress billings 160 DR
Cash received 150 CR
Balance 10 DRBased on the examiners answers I got the figures for the SOFP correct.
But I did not get the SOPOL figures right.
Instead I noticed he only showed what I think is the difference for the particular figure between both the cost and sales basis method.Can you explain why he did that? Or Where did I go wrong?
Thanks!
No, the examiner’s answer calculates the cumulative position at the end of year 2 and then deducts the year 1 data.
Remember, working 1 for the statement of PorL is a cumulative working so, having arrived at the cumulative working 1, you then need to deduct the equivalent figures that have been recognised in the previous year’s statement of PorL
Does that explain it for you?
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