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Hello chris,Hope you are doing well and safe.Thanks for the wonderful lectures.
My ques is about profit figure while determining contract asset.(practical book que no. 85)yling co. entered into the contract which is expected to last 24 months on 1.1.20×4.contract price is 5 million.at 30 sep 2014 cost incurred were 1.6 million and the estimate remaining cost to complete were 2.4 million.co. measures satisfaction of performance obligations under the contract based on percentage of project certified as completed.at 30 sep 20×5 its 38%.
on 20 sep 20×4 co. rec. payment from customer of 1.74 million which was equal to total of amounts invoiced to date.I want to know what is the profit recognised at 30 sep 2014.kindly explain in detail.
Thanks so much!
Hi,
Thanks for the kind words and glad that you are enjoying the lectures.
I won’t answer the question outright for you but will help you towards the right answer (hopefully!).
You will first need to work out the total profit (total revenue less total costs) and then look at using the stage of work certified to work out the revenue and profit to date.
Let me know how you get on.
Thanks
Can we do like this:
Revenue(5m*38%) 1.9
Less:cost till date. 1.6
Profit 0.3mCost till date. 1.6m
Add: profit 0.3m
Less: amount invoices (1.74m )
Contract asset: 0.16mTo calculate the total profit we look at total income less total costs (to date plus costs to be incurred), this would be 5 – 1.4 – 2.6 = 1.0 profit.
You can then work out the revenue as you have done above but then you need to recognise 38% of the profit and the costs are the balancing figure.
Thanks
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