Contract view

Ques - Merryview specialises in long-term contracts. In each contract Merryview is entitled to receive payments reflecting the progress of the work, so revenue should be recognised over time. One of its contracts, with Better Homes, is to build a complex of luxury flats. The price agreed for the contract is $40 million and its scheduled date of completion is 31 December 20X2. Details of the contract to 31 March 20X1 are: Commencement date 1 July 20X0 Contract costs: $000 Architects’ and surveyors’ fees 500 Materials delivered to site 2,800 Direct labour costs 3,500 Overheads are apportioned at 40% of direct labour costs Estimated cost to complete (excluding depreciation – see below) 14,800 Plant and machinery used exclusively on the contract cost $3,600,000 on 1 July 20X0. At the end of the contract it is expected to be transferred to a different contract at a value of $600,000. Depreciation is to be based on a time-apportioned basis. Better Homes made a progress payment of $12,800,000 to Merryview on 31 March 20X1. At 31 March 20X2 the details for the construction contract have been summarised as: $000 Contract costs to date (i.e. since the start of the contract) excluding all depreciation 20,400 Estimated cost to complete (excluding depreciation) 6,600 A further progress payment of $16,200,000 was received from Better Homes on 31 March 20X2. Merryview accounts for profit on its construction contracts using the input method, measured using the percentage of the cost to date compared to the total estimated contract cost. Required: Prepare extracts from the financial statements of Merryview reflecting the impact of the contract with Better Homes for: (i) the year to 31 March 20X1 (ii) the year to 31 March 20X2. My question - Depreciation ($3m/30 months × 9 months) 900 - 31st March 11 ($3m/30 months × 21 months) 2,100 - 31st March 12 –––––– –––––– Total costs to date 9,100 22,500 Costs to complete: Excluding depreciation 14,800 6,600 Depreciation ($3m/30 months × 21 months) 2,100 Depreciation ($3m/30 months × 9 months) 900 I dont understand the above calculation they have done here , could you please explain this to me. Also, is this kind of questions are we really expecting in exams?