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P2-D2.
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- May 17, 2021 at 4:47 pm #620852
Dear Tutor,
I would like to ask about contract assets and the two different ways of calculating them. How would I know which one to use in any situation? I’ve solved both of them with their different ways and came to different amounts. The questions bellow each one uses a different calculation. The solutions are from the exam kit.
1st Question
Co entered into a contract expected to last 24 months on 01.01.20X4. Fixed price of contract is $5M. At 30.09.20X4 costs incurred on the contract were $1.6M and estimated remaining costs are $2.4M. On 20.09.20X4 Co received from the customer a payment of $1.74M which is equal to total of amounts invoiced. Co calculates completion based on the percentage of the project certified as completed. At 30.09.20X4, the % certified as completed to date was 38%.What amount should be reported at 30.09.20X4 as Contract Asset?
The solution given is
000
Revenue recognized to date(5m x 38%) 1,900
Less amounts invoiced (1,740)
Contract asset 1602nd Question
Bridgenorth has undertaken a $5million contract to repair a railway tunnel. The contract was signed in 1 April 20X8 and the work is expected to take two years. This is a contract where performance obligations are satisfied over time and progress in satisfying performance obligations is to be measured according to % of work completed as certified by a surveyor. Bridgenorth has an enforceable right to payment for performance completed to date
At 31 December 20×9 the details of the contract were as follows
—————————————————–20×9———-x0x8
Total contract price—————————-5000——–5000
cost to date————————————-3600——–2300
estimated cost to completion————–700———-2100
work invoiced———————————3000——–-2000
cash received——————————–2400——–—1500
%certified complete————————–75%———-40%What is the contract asset to be recognised at 31/12/20X9?
The solution given is
Costs to date 3.600.000
Profit to date (5,000,000-4,300,000 X 75%) 525,000
4,125,000
Less amounts invoiced (3,000,000)
Contract asset 1,125,000May 17, 2021 at 8:07 pm #620885Hi,
Yes, there are two ways of calculating the amounts and either is acceptable currently so please do not get too worried over it. It has been causing concern but it is unnecessary.
Thanks
May 18, 2021 at 6:42 pm #620969Hello,
I was concerned because each way you calculate it you come to a different amount.
Thanks
May 19, 2021 at 10:00 pm #621123In one of the other posts in the forum you will see that a student has asked the ACCA directly and they have confirmed that both methods are currently acceptable, which is good to know.
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