- March 27, 2021 at 6:55 pm #615346mklymenkoMember
- Topics: 3
- Replies: 15
I have few questions about the calculations and the answers in the Example 7 – Perfomance obligations over time and the statement of financial position.
We are given these inputs:
Costs to date 31.12.20×5:
Attr. to work completed 52,000,000
Inventory purchased 8,000,000 __60,000,000__
Billing to date 45,000,000
Cash received 26,500,000
Costs to completion 48,000,000
Stage of completion @ 31.12.20×5: 40%
Through calculations the lecturer arrives at such SPL:
Cost 43,200,000 (Balancing figure)
And based on that Contract Asset (CA) is equal to 19,800,000.
However, if CA is the amount earned by the entity but not yet invoiced that would imply that our revenue for the period should be Total Billings + CA, i.e. 19,800,000 + 45,000,000 = 64,800,000, but from our calculation above we see Revenue amounting to 56,000,000.
The way I was working through example myself equation Billings + CA = Revenue held true.
The difference in my calculation was that I was not applying 40% Stage of Completion to Revenue to arrive at costs, instead I used the costs attributable to the work already completed to arrive at Revenue (12,800,000 + 52,000,000 = 64,800,000).
I find the last paragraph above as quite confusing after following the lectures, as in “Revenue – Example 5 (profitable contracts)” the lecturer used the Revenue figure given by default as “Work certified completed for the period” ($15M), while the TCV is $45M, which gives us Output ratio of 15/45 = 33.3%, while at the same time the Stage of Completion given in the example of 70% would imply Revenue for the period being 31.5.
I am looking to clarify my overall understanding here.
Thank you very much in advance for taking time to answer and thank you a million for what you are doing.
Kind regards.April 1, 2021 at 5:49 pm #615706P2-D2Keymaster
- Topics: 4
- Replies: 6460
I’m not sure why you are trying to calculate the revenue in the manner you are doing so (billings + CA = revenue). You need to work out the revenue first based upon the stage of completion and then from here work out the figures on the SFP.
When looking at the revenue you will need to look at the method used to calculate the stage of completion. If it is the work certified then the figure for revenue will always be the work certified. For the cost based method then you will need to follow the calculation through.
Thanks and glad you are getting the benefits of what we do at OT.
- You must be logged in to reply to this topic.