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Sir I was able to do example 4 but I am totally stock at example 5.
I could not even figure at the solutions from the back of the text as there was no explanation to arriving at those solution figures provided.
Could you pls, I assume you have the questions with you but if not I can write them out here.
Thanks in anticipation.
I believe that this is the question where, at the end of year 2, a loss of $140,000 is forecast
That anticipated loss should be recognised in full and, to do that, the cumulative costs figure needs to be extraordinarily high at $790,000
Are you ok from there?
yr1 yr 2 yr3
contr value 1m 1m 1.2mcost to date, gen 300,000 500,000 800,000
spec to date 40,000 40,000 190,000
Est to complete 500,000 600,000 –
Amt invoiced 390,000 610,000 1,150,000
amt rec 400,000 630,000 1,100,000
% complete 30% 65% 100%The additional $200,000 contract value arose in year 3 from agreed variation with the the as a result of customer’s delays involving additional costs for the constructor of $150,000, none of which was foreseen at the end of year.
prepare relevant extracts from the statement of Comp Income SOFP for each of the 3 years.Wk1 SOPL
yr1 yr2 yr3
Rev reco 65% of 1m 300,000 350,000 (650-300) 1,200,000costs rec period 40,000
gen3 0%(300+500)=240,000 (280,000) stock stockest profit 20,000 ^^ ^^
I’m not sure what you want from me here – there doesn’t appear to be a question aimed at me!
Well I just copied all the questions out so you can see. Example 5 of construction contract profits.
For the 1 year , second year and third year I was able to calculate the revenue recognized .
For the 1 year I calculated 20,000 as estimated profit recognized but I can not calculate further for the 2 year and third year. Pls assist .
Year 2:
general costs to date 500,000
period specific costs to date 40,000
estimated costs to complete 600,000therefore total costs on the contract are estimated to be 1,140,000
contract revenue is only 1,000,000
so forecast loss is 140,000
Now can you sort it out?
Yes I got the forecast cost be 140,000. But I did not know what to do because I saw 280,000 , 510,000 and 200,000 as cost recognized for the years respectively. For the 280,000 , that I know but others I don’t know.
From the question there is 150,000 additional costs which was not foreseen at the end of yr 2.
Pls help me sir.
So that $150,000 is period specific for year 3
“I saw 280,000 , 510,000 and 200,000 as cost recognized for the years respectively”
$280,000 is calculated as 30% of total anticipated costs on the contract
Year 2 a loss is forecast so, if we’re recognising 65% of revenue (cumulatively) ie $650,000 accumulated revenue as at the end of year 2, and we need to recognise a forecast loss of $140,000, then cumulative costs to be recognised must be $790,000
But we have already recognised $280,000 costs in year 1 so there’s only a further $510,000 to recognise in year 2
Better?
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