- October 31, 2015 at 4:43 am #279739
i have a series of questions and i will ask one by one
agreed price of contract is 250 and estimated cost is 200
cumulative progress is as follows:
costs incurred ———————– 80 —————–145
work certified and billed ———– 75 —————–160
billings received ——————–70 ——————-150
2011 extracts based on costs incurred to date/total costs (P/L AND SOFP ARE ALSO GIVEN IN THE QUESTION AS BELOW)
Rev (balance) ——- 100
QUESTION: why is Rev being calculated is a beta? since we know costs incurred, we get (80/200)x250=100. so why consider Rev as a balancing amount?
SOFP 2011 EXTRACT (GIVEN)
DUE FROM CUSTOMERS
costs to date ——————–80
profit recognized —————20
the question states that for 2012, the company changes from stage of completion from costs incurred/total costs to work certified/contract price
and that based on this change, we are supposed to calculate the p/l and sofp for 2012
using the 4 step workings:
1. overall outcome: PROFIT/LOSS = CONTRACT PRICE – COSTS INCURRED – COSTS TO COMPLETE.
since we do not know the costs to completion, this cant be done.
2. SOC = 160/250 = 64%. correct?
Revenue = 250×64%= 160 – rev. recognized previously=160-100=60
costs ========================== ===========145-80=(65)
however, in the answer, the costs are now a balancing figure, and the profit is calculated on the basis of SOC. why?
i will stop here before i ask further questions.
thank uOctober 31, 2015 at 4:51 am #279740
please read this before answering!!!!!
i get the p/l working for 2012. 64% x 200 = 128-80=48 (80 is the cost recognized in 2011)
my only question now is: why wd the answer use the SOC on the profit and treat cost as a balancing figure when its rather straight forward??October 31, 2015 at 7:45 am #279754
“why is Rev being calculated is a beta” – because we’re not told revenue / percentage complete so have to work that out by basing calculations on costs incurred. That’s not illustrated in the lecture notes but is a different way of arriving at attributable profits
“2. SOC = 160/250 = 64%. correct?” – yes, correct
“why wd the answer use the SOC on the profit and treat cost as a balancing figure?” – because we’re not given estimated costs to complete?October 31, 2015 at 7:52 am #279755
good morning and thank u.
there is related question to this:
why the change of SOC is considered a change in estimate and not a change in accounting policy.
i have read the answer but dont quite get itOctober 31, 2015 at 7:56 am #279757
In one way we try to calculate profits based on estimated stage of completion and in the other way we try to find profits based on estimated stage of completion
But the way in which we arrive at the estimated stage of completion is just a revision of the estimate
Change of policy would be where the company moves away from only taking account of profit when contract is (say) 30% complete to taking profit when contract is (say) 10% compete
OK?October 31, 2015 at 8:46 am #279764
yes….thank u!!!October 31, 2015 at 11:28 am #279784
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