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July 15, 2020 at 5:43 pm
I’m trying to make entries to get SFP and SPL, could you please confirm or correct me?
1) Costs: Dr Due from customers $52,000 – costs attributable to work Dr Inventory $8,000 – inventory for future use Cr Bank $(60,000)
2) Receivables: Dr Receivables $45,000 – progress billing to date Cr Due from customers $(45,000) – reducing outstanding amount due from customer
Dr Bank $26,500 – Cash received Cr Receivables $(26,500) – leaves us with $18,500 outstanding receivables on SFP
3) Revenue and costs Dr Due from customers $12,800 (balancing) Dr Costs $43,200 Cr Revenue $(56,000)
July 8, 2020 at 4:03 pm
In SFP while calculating Contract asset why didnt we take cost to date as 55200 (52000+(40%of 8000)). It says to be used in future years but on contrary it doesn’t say it is not used in first year?
July 10, 2020 at 5:57 pm
it saying future years and not present year, therefore its not relating to the first year.
July 5, 2020 at 12:14 pm
why didnt we use the 18500 receivable value in computing the value of the asset? why have we used 45000?
July 15, 2020 at 5:52 pm
Because we have already billed 45,000 to customer, which means he should have paid 45,000 out of the total asset value.
The other thing is that he haven’t yet paid 45,000 in full, but just 26,500. Maybe he’s late with his payment, or we billed 18,500 on December 20 and he has 30 days to pay. In either case, we’ve billed but not yet received = Receivables at 18,500.
Contract assets will accumulate costs and profits overtime, so we need to deduct accumulated billed amount, not just outstanding one. Because if he (in a lucky coincidence) pays everything at the same moment we bill it, then Outstanding Receivables will always be zero, and we will never deduct anything, therefore Contract asset will always look increase in value and look like we’ve never received any cash for it.
July 21, 2020 at 3:02 pm
The “underlying” asset value is 64,800=52,000+12,800. But once you invoice even part of it, you are, as it were transforming it into other asset i.e receivables. Again, if part of receivables is actually paid, we have yet another transformation of assets AR => cash. However, please note that at any point in time the whole asset family is worth 64,800. Recording subsequent transactions in a manner explained by Chris, we insure that original (underlying) asset value is not partly doubled at any time. 52,000+12,800-(45,000+45,000)-(26,500+26,500) = 52,000+12,800
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