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Dear Tutor,
If I have a question where a construction company makes a mistake and incurs rectification cost of 5, should I include this 5 into my calculation of ‘amounts due from/to customers’? Should I include this 5 into my percentage of completion calculation?
Many thanks,
ValentinaHi, it really depends on whether the company can recover the amount from the customer. If it is recoverable, then the contract value will increase. If it’s not recoverable, the contract value will stay the same. However, from the builder’s point of view, this is simply an unanticipated cost which will be included within the cost to date figures and will therefore reduce the overall profit of the contract.
It is of no concern to the customer how / why the builder has had to spend the money – so far as the customer is concerned, they have a contract at a specified price and that’s how much they will pay.
So, if it is not recoverable, I need to include it into ‘amounts due from customers’ and percentage of completion calculation, correct?
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