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Hi Mike,
I am not getting through with the proper calculation of both Year 2 and 3 costs.; specifically both costs to date and total costs recognised. Even though I have deducted the year 1 figures, I am not getting the answers stated at the end of the notes. Please break it down for me.
Do you remember reading that “if a loss is forecast overall, that loss shall be recognised in full immediately”?
Yes I did read that, but I am getting a forecast loss of $115,000 in Yr 2, not $160,000 or $140,000? So therefore my Yr 3 figures are incorrect as well.
No! Where a loss is forecast, you calculate the loss ie you don’t calculate the cost recognition. So if total expected costs are 500 + 600 + 60 and the contract is for 1,000 then your loss is 160.
Now put in the costs to be recognised to give an overall loss of 160
Okay Mike,
Yr 2 costs (500+40+600)= 1,140 – 1,000 = (140,000) loss
Yr 1 profit – 20,000 + (140,000) = (160,000)loss cumulativeYr 2 costs-Yr 1 costs = 340,000 + 160,000 = (510,000)
Yr 2 Revenue (650-300) = 350 – costs 510 = (160)
then Yr2 costs 510 + Yr 1 costs 240 = (750) cumulative.
I hope my interpretation is correct?
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