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- October 25, 2021 at 5:27 pm #639090
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 22,500Costs to complete:
Excluding depreciation 14,800 6,600
Depreciation
($3m/30 months × 21 months) 2,100
Depreciation
($3m/30 months × 9 months) 900I 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?October 30, 2021 at 9:44 am #639454What don’t you understand specifically about the question? You need to give me a bit more to help you with what you do not understand.
Thanks
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