Acca exam Question

Ok, but you need to tell me exactly which part of the question / solution you are struggling with – I can’t go through the entire question line by line, so tell me which figure it is that is causing you trouble

Hi

There’s an idiomatic expression that we use in England ; “There’s more than one way to skin a cat”

Essentially, as applied to the problem of determining construction contract profits whilst the contract is in progress, there are a number of ways of achieving this

The “traditional” way (finding that at the end of year 1 the contract is 28% complete and so taking 28% of the overall contract costs) does not allow us to arrive at the (I quote) “correctly calculated” figures for the period to 31 March 2010

Unfortunately, in an exam situation, you’re unlikely to realise this and equally unlikely to work out exactly how the attributable profit of $840 has been calculated

The examiner’s answer has calculated the overall profit to be made on the contract – $5,500 costs + half of the cost of the plant ($8,000 / 2) giving total costs of $9,500

Compare that with the contract value of $12,500 and we arrive at $3,000 overall profit on the contract

The contract is 28% complete at the end of year to 31 March 2010 and 28% of $3,000 is $840

Similarly, at the year end 31 March 2011 the contract is 65% complete and 65% of $3,000 is $1,950

Of that $1,950, $840 was recognised in 2010 so the recognised profit for year to 31 March 2011 must be $1,950 – $840 = $1,110

But if profit recognition is $1,110 and revenue recognition is 65% of $12,500, $8,125 – $3,500 recognised in 2010 (so $4,625) then cost recognition for 2011 must be the balancing figure of $4,625 – $1,110 per question = $3,515

As for the depreciation, it may help you to draw a time-line with separate moments in time headed 1.10.09, 1.01.10, 31.03.10, 31.03.11

Now (hopefully) you can see that there should be a charge for depreciation of 3 months (that’s 3/48 x $8,000 = $500) in the 6 month period to 31 March 2010 and 12 months charge for depreciation (12/48 x $8,000 = $2,000) in the year to 31 March 2011

Does that sort out that problem?

Come back to me if you need to

You’re welcome

I’ve just answered this! What have you done with it?

Here we go again 🙁

Palister is issuing 2 shares in Palister worth $4 each for every 5 shares acquired in Stretcher

Does that answer point number 1?

The goodwill impairment? Personally, I would have calculated the Palister share of that $3m impairment and deducted that figure from the consolidated retained earnings

The nci share I would have deducted from the nci in working W4A

But if I deduct the full $3m from the Stretcher retained profits and then take Palister’s share of that reduced figure, I arrive at the same conclusion. try it for yourself – do it “my” way and do it as per the exam answer and you’ll see they come out the same

Now, a question for you!

How come you know what’s in the December exam for 2016 apparently in both questions 1 and 3?

Do you happen to know this Saturday’s lottery numbers too?

You’re welcome Natoya and, should you happen to develop this foresight ability, you won’t forget me and lottery numbers will you?