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Construction Contracts-Chp 13 Example 5

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Construction Contracts-Chp 13 Example 5

  • This topic has 7 replies, 2 voices, and was last updated 7 years ago by MikeLittle.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • December 1, 2015 at 8:31 pm #286827
    cecel
    Member
    • Topics: 5
    • Replies: 11
    • ☆

    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.

    December 1, 2015 at 8:42 pm #286829
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22714
    • ☆☆☆☆☆

    Do you remember reading that “if a loss is forecast overall, that loss shall be recognised in full immediately”?

    December 1, 2015 at 8:56 pm #286831
    cecel
    Member
    • Topics: 5
    • Replies: 11
    • ☆

    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.

    December 1, 2015 at 9:14 pm #286833
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22714
    • ☆☆☆☆☆

    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

    December 2, 2015 at 3:34 am #286867
    cecel
    Member
    • Topics: 5
    • Replies: 11
    • ☆

    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 cumulative

    Yr 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?

    December 2, 2015 at 8:49 am #286913
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22714
    • ☆☆☆☆☆

    Looks good to me!

    Watch out for that forecast loss situation!

    December 2, 2015 at 4:08 pm #287015
    cecel
    Member
    • Topics: 5
    • Replies: 11
    • ☆

    Thank you Mike

    December 2, 2015 at 5:22 pm #287027
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22714
    • ☆☆☆☆☆

    You’re welcome

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