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MikeLittle.
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- February 18, 2016 at 7:24 am #300923
Here is a question based on contract assets/ liabilities
Total contract revenue $72000
Costs to date $8000
Estimated cost to completion $54000
Date started 15.10.20X5
Estimated completion date 15.9.20X6
%complete 10%Please calculate the revenue and expense to be recorded in profit or loss.
February 18, 2016 at 7:32 am #300926If the year end is 30 September, that’s a “non-question” – you should have told me what the accounting date is
In addition, there is the basic principle that no profits are recognised until the contract is sufficiently progressed to be able to predict with reasonable certainty the ultimate outcome, and it’s VERY debatable that 10% completion is sufficient
IF we accept that 10% IS sufficient progress, then 10% of revenue will be $7,200 and 10% of total costs will be $6,200
But it’s a poor question (or you haven’t given me full information!)
February 18, 2016 at 2:59 pm #301015It is a question from BPP preparation questions : Contract
The year end is 31st Dec 20X5February 18, 2016 at 3:24 pm #301028I’ve told you the answer! If 10% is enough to predict with reasonable certainty, then revenue recognised will be $7,200 and costs recognised will be $6,200
If 10% isn’t enough to predict with reasonable certainty, then revenue recognised will be $7,200 and costs recognised will also be $7,200
February 18, 2016 at 3:31 pm #301033It’s 25% completed to be to be considered
They have charged revenue and expense both at $8000.
February 18, 2016 at 3:55 pm #301042“It’s 25% completed to be to be considered” – do you mean that the question actually tells you that the contract has to be at least 25% complete before any profit should be recognised?
Is that what this line of yours means?
February 18, 2016 at 4:02 pm #301046Yes
February 18, 2016 at 4:10 pm #301049THEN WHY DIDN’T YOU TELL ME THAT, EITHER IN YOUR ORIGINAL QUESTION OR AFTER MY FIRST RESPONSE? :-(((
Because we’re only at 10%, no profit should be recognised
My answer of $7,200 revenue and $7,200 costs recognises no profits
BPP answer of $8,000 revenue and $8,000 costs recognises no profits
My answer leaves me with an $800 “asset” of costs incurred, not yet recognised
BPP answer leaves them with revenue of $800 recognised in excess of 10% of the contract value
I wouldn’t like to say which is more correct (or more incorrect!)
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