Construction Contracts - Example 5

Mmarky12314y ago

Hi please could you advise;
Chapter 13 – Example 5.

In answers, General Costs are $ 750,000. (For year 2)
How is this arrived at? I only get it to $ 715,000 ??

My workings:
Costs to Date 500,000
Estimated to completion 600,000
————
1,100,000 @ 65% = 715,000

Any help much appreciated

MikeLittleTutor14y ago#1

Hi

If you look at the figures for the end of year two, you may notice that the contract is now forecast to make an overall loss. In the situation of a forecast loss, the entire loss should be recognised as soon as it is anticipated. So, instead of calculating revenue recognised and cost recognised ( therefore giving profit recognised ), we have to calculate revenue recognised ( in the normal way ) but then put the projected loss in the "Profit recognised" third line. That then means that costs to be recognised must be the "missing" figure.

Does that help?

Mmarky12314y ago#2

Yes. Thanks Mike - I realise my mistake and managed to get the 750k

MikeLittleTutor14y ago#3

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