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Hello Tutor,
<december2013>
Moby entered into a contract to construct an asset for a customer, performance obligation is satisfied over time. The balance in trial balance represents $14m costs incurred to date and $10m value of contract billed and cash received. Should the receivable of $10m be added to both the revenue and trade receivable amounts? The question did add it to only revenue but not to trade receivable, why is that so?‘The balance in trial balance represents $14m costs incurred to date and $10m value of contract billed and cash received.’
What makes you think that the $10 million has actually been received?
What’s the matter with …
Dr Receivables $10m
Cr Construction Contract account $10m… as the part explanation of the $4m figure in the trial balance?
Sorry, I still don’t understand a part of that
In the June 2009 paper question 2 on Pricewell Co,
The trial balance shows a construction contract account of $14,300, which represents
Material etc $12,000
Plant $8,000
Payment from customer $(5,700)The sales value of the work done has been agreed at $22m and the estimated cost to complete is $10m.
The receivable was calculated to $16,300.
The answer added $22m to revenue (which I understand now), but added $16,300 to trade receivables (why?)Have you followed the video lecture on this?
The question you originally posted suggested that you believed that the $10 million had been invoiced AND PAID
There is NOTHING in that question to say that it has been paid
This is a different scenario from Pricewell
Have you watched me work through the Pricewell question in the revision lectures?
May I ask that you watch me work through Pricewell, that you watch the video lecture of construction contracts (if it’s still on the site) and then look at Moby again
If you’re still in trouble after that, by all means post again
Sorry, I have not watched all your lectures, but I just did for the revision lecture on pricewell co. Can I confirm this?:
In moby’s scenario,
The question did not say that customer had paid for the $10m, and the trade receivables in the trial balance had included this amount, and so no adjustments were needed.In pricewell’s scenario,
It said that $5,700 had been paid for by the customer, but didn’t say that the remaining $16,300 was billed or not. And so we had to add this amount to the trade receivables account.Is this correct?
Sounds correct
You should watch the lecture on chapter 13 from page 72 onwards – that will show you how you arrive at the receivables figure
You shouldn’t try to ‘memorise’ answers because questions are only rarely the same!
Alright I will 🙂 guess I had misunderstood the phrase “…invoiced and cash received”, thank you!
Hi sir,
The company recognises revenue on the basis of the costs completed as a proportion of the final contract value. the client gains the use of the asset doing its construction.
the following details apply to a contract where performance obligations are satisfied over time at 31 December 20X5.
Total contract revenue 120,000
Cost to date 48,000
Estimated costs to completion 48,000
Amounts invoiced 50,400the contract is agreed to be 45% complete at 31 December 20X5.
What amount should be recognised in the statement of financial position at 31 December 20X5 as a contract asset?
Could you please explain the answer for this sir?
working provided is
120,000-48,000-48,000 = 24,000 * 45% = 10,800Cost incurred 48000 + 10,800 – 50,400 = 8,400 I don’t understand this part sir, kindly help to clarify.
Thank you!
Hi,
The 10,800 is the profit recognised through profit or loss and the 8,400 is the contract asset on the SFP.
The profit is the percentage complete multiplied by the total profit.
The asset is calculated as the costs to date plus profit to date less amounts invoiced.
Thanks
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