- December 4, 2015 at 1:51 am #287391
on 1 jan, 2013 Agnes entered into a construction contract that is expected to last 36 months. The agreed price for the construction work was 20mil. As at 30 sept,2013 the costs incurred on the contract were $4mil and the estimated costs to complete the contract were $12mil. In addition to the above costs on 1 July, 2013 Agnes acquired for exclusive use on the contract an item of plant for $1mil. This plant has an estimated useful life of 2 years and will be scrapped at the end of that time.
On 20 Sep,2013 Adriadne received a payment from the customer of $7mil which amount was equal to the progress billings to date. Adriadne calculates the stage of completion on construction contracts on the basis of progress billings as a proportion of the contract price
What amount would be reported in Ariadne’s statement of financial position sa at 30 Sep 2013 for the amount due to/from the customer for the above contract?
since % of completion is according to progress billing over contract price thus on 20 Sep 2013, the % completion = 7/20*100%= 35%
w1 Rev Recognised $20mil * 35% = $7mil
cost incurred on contract general = ($4mil+$12mil)*0.35=$ 5.6mil
cost recognised specific = $1mil (3/24)=$0.125mil
total cost recognised=5.6+0.125= $5.725mil
w2 cost incurred to date =$4mil
profit recog= $1.275mil
progress billing to date=$7mil
amt due to/from customer = 4+1.275-7= ($1.725mil)
thus $1,725,000 liability
but there’s no option of this in answer, instead $ 1,600,000 liability is the correct answer, may i know why?December 4, 2015 at 8:50 am #287452
Because costs incurred to date should include the 125 element of the specialised plant.
That brings us to:
Costs incurred to date (4,000 + 125) 4,125
Attributable profit 1,275
Amounts invoiced 7,000
Amount due to customer (1,600)
OK?December 4, 2015 at 5:14 pm #287603
yes yes i see, i didn’t include the specific cost at the second part of the questionDecember 4, 2015 at 5:39 pm #287616
What confused me were all these women!
“Agnes entered into a construction contract ”
“Adriadne received a payment”
“Ariadne’s statement of financial position”December 4, 2015 at 5:44 pm #287617
in a construction that is 80% complete, with following info
contract price $2mil
cost incurred to date $1600,000 includes $50,000 specific cost
estimate cost to complete $550,000
what is cost recognised?
answer says $1750,000
i thought is ((1600,000-50000)+550,000)*0.8 + 50,000 = 1730,000?December 4, 2015 at 5:49 pm #287618
150,000 is the forecast loss
1,600,000 is the revenue recognised
Therefore costs recognised must be 1,750,000
LOOK AT THE COURSE NOTES!!!!December 4, 2015 at 5:54 pm #287621
sorry Mike, how do you get the 150,000 forecast lost?December 4, 2015 at 5:55 pm #287623
nvm i got it. my brain need to spin againDecember 4, 2015 at 5:57 pm #287625
i meant i know how 150,000 come from but i not quite understand it.
your lecture say
cost recognised is general (cost incurred to date + estimate cost of completion) * % of completion
+ specific cost related to that period 100%
thus i use the calculation and reach 1730,000
why this time round we use the forecast total lost (1600000+550000)-full contract price?December 4, 2015 at 6:05 pm #287626
we use the forecast method when there’s a lost recognised
or else stick to your formula right?
i think this make sense as we need to recognised the lost in full to have a true and fair view (reduce penumbral area of divergence possibilities)December 4, 2015 at 8:08 pm #287648
LOOK AT THE COURSE NOTES!!!!
It’s all explained in there as well as in the lectures
LOOK AT THE COURSE NOTES!!!!December 5, 2015 at 5:02 am #287713
Found it , last 3 Min of ur first construction contract lecture. Yea I missed it. Thanks for your patience hahaDecember 5, 2015 at 8:26 am #287738
The lectures are recorded in a genuine class room environment. Students listen or, if they switch off, they may miss important points.
It’s no point having a lecture and failing to pay attention for the entire period!
The students on the courses were 100% not natural English speakers and lectures lasted 90 minutes.
If they can do it ……. so can you
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