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Dear Mike
I am practicing MCQ and I came across the following:The total contract revenue was $50m and construction expected to be completed on 30.09.20×4.
Costs to date are:
Materials, labour and OH $12m
Special plant acquired $8mThe sales value of the work done at 31.03.20×3 has been agreed at $22m and the estimated cost to complete (excluded plant depr) $10m. The specialist plant will have not residual value at the end of the contract should be depreciated on a monthly basis. The company recognise satisfaction of performance obligations on the percentage of completion basis as determined by the agreed work to date compare to the total contract price.
What is the profit to date on the contract at 31.03.20×3?
Option:
A – $8.8m
B – $13.2m
C –$11.44m
D – $10mMy answer was:
As at 31.03.20×3 – completion % = 22/50 = 44%
Rev recogn $22m
Cost recogn: ($12m + $10m+$2m) x 44% ($10.56)
Profit recog $11.44Depr calculation – 01.10.20×3 to 31.03.203 = 6 months
$8m/2y x 0.5y $2mHowever, the revision book indicate as correct answer A and not C. The difference is in the way that the depreciation is calculated.
Am I doing something wrong?
Many thanks,
m.a.wWouldn’t it have helped me if you’d given me the date the contract started and the date the plant was acquired?
However, with what incomplete information available to me, here goes
Total costs are $12 to date, $10 to complete and $8 plant
That gives us a total cost of $30 and therefore a profit of $20
44% of $20 is $8,800
The working that takes the total costs into account on a percentage basis must be inferred / insinuated by the wording in the question “… compare to the total contract price” with emphasis on “total”
OK?
In future, please give me full information and, with the information that you DO give me, can you make a bit more effort to get the transcription correct?
“… Depr calculation – 01.10.20×3 to 31.03.203 = 6 months” Does this make sense to you?
Dear Mike,
Many thanks for your response and apologies if my transcription wasn’t the best.
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