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Q:
on 1 jan, 2013 Agnes entered into a construction contract that is expected to last 36 months. The agreed price for the construction work was 20mil. As at 30 sept,2013 the costs incurred on the contract were $4mil and the estimated costs to complete the contract were $12mil. In addition to the above costs on 1 July, 2013 Agnes acquired for exclusive use on the contract an item of plant for $1mil. This plant has an estimated useful life of 2 years and will be scrapped at the end of that time.
On 20 Sep,2013 Adriadne received a payment from the customer of $7mil which amount was equal to the progress billings to date. Adriadne calculates the stage of completion on construction contracts on the basis of progress billings as a proportion of the contract priceWhat amount would be reported in Ariadne’s statement of financial position sa at 30 Sep 2013 for the amount due to/from the customer for the above contract?
A:
since % of completion is according to progress billing over contract price thus on 20 Sep 2013, the % completion = 7/20*100%= 35%w1 Rev Recognised $20mil * 35% = $7mil
cost incurred on contract general = ($4mil+$12mil)*0.35=$ 5.6mil
cost recognised specific = $1mil (3/24)=$0.125mil
total cost recognised=5.6+0.125= $5.725milprofit reg=7-5.725=$1.275mil
w2 cost incurred to date =$4mil
profit recog= $1.275mil
progress billing to date=$7mil
amt due to/from customer = 4+1.275-7= ($1.725mil)thus $1,725,000 liability
but there’s no option of this in answer, instead $ 1,600,000 liability is the correct answer, may i know why?
Because costs incurred to date should include the 125 element of the specialised plant.
That brings us to:
Costs incurred to date (4,000 + 125) 4,125
Attributable profit 1,275Sub-total 5,400
Amounts invoiced 7,000
Amount due to customer (1,600)OK?
yes yes i see, i didn’t include the specific cost at the second part of the question
What confused me were all these women!
“Agnes entered into a construction contract ”
“Adriadne received a payment”
“Ariadne’s statement of financial position”
another question
in a construction that is 80% complete, with following info
contract price $2mil
cost incurred to date $1600,000 includes $50,000 specific cost
estimate cost to complete $550,000what is cost recognised?
answer says $1750,000i thought is ((1600,000-50000)+550,000)*0.8 + 50,000 = 1730,000?
150,000 is the forecast loss
1,600,000 is the revenue recognised
Therefore costs recognised must be 1,750,000
LOOK AT THE COURSE NOTES!!!!
i meant i know how 150,000 come from but i not quite understand it.
your lecture say
cost recognised is general (cost incurred to date + estimate cost of completion) * % of completion
+ specific cost related to that period 100%thus i use the calculation and reach 1730,000
why this time round we use the forecast total lost (1600000+550000)-full contract price?
we use the forecast method when there’s a lost recognised
or else stick to your formula right?
i think this make sense as we need to recognised the lost in full to have a true and fair view (reduce penumbral area of divergence possibilities)
LOOK AT THE COURSE NOTES!!!!
It’s all explained in there as well as in the lectures
LOOK AT THE COURSE NOTES!!!!
Found it , last 3 Min of ur first construction contract lecture. Yea I missed it. Thanks for your patience haha
The lectures are recorded in a genuine class room environment. Students listen or, if they switch off, they may miss important points.
It’s no point having a lecture and failing to pay attention for the entire period!
The students on the courses were 100% not natural English speakers and lectures lasted 90 minutes.
If they can do it ……. so can you
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