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Construction Contract (cont')

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Construction Contract (cont')

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by MikeLittle.
Viewing 2 posts - 1 through 2 (of 2 total)
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    Posts
  • March 24, 2018 at 4:03 am #443651
    xiiaolih
    Member
    • Topics: 65
    • Replies: 42
    • ☆☆

    Regarding to the following questions: as you mentioned in the last post depreciation of idle ppe is not included in contract cost and it is fall under different expense category. May I knw it will fall under which category?

    Puglia Plc is constructing a skyscraper in the heart of town and has signed a fixed price three- year contract for $21m with the local authorities. It has incurred the following cost relating to the contract by the end of first year:

    Material cost=5m
    Labour cost=2m
    Construction overhead=2m
    Marketing costs=0.5m
    Depreciation of idle ppe=0.5m

    At the end of the first year, it has estimated costs to complete the contract as 9m. The company recognises revenue, costs and profits on a costs basis.

    What profit or loss from the contract should Puglia Plc recognise at the end of the first year?

    a)1.5m
    b) 1.0m
    c) 1.05m
    d)1.28m

    March 24, 2018 at 7:55 am #443654
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    In the category in which other depreciation not related to the contract is included

    It could be “cost of sales” or even “administrative costs” – each separate entity will have chosen their own expense account into which depreciation should be debited – so far as I am aware there is no one individual specified account title into which depreciation is expensed

    Why have you repeated the question Puglia? I have already explained in my previous response why I believe the answer should be $1.5

    OK?

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    Posts
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  • The topic ‘Construction Contract (cont')’ is closed to new replies.

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