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Dec 2004 Question chamberlain
Commencement date (1 Oct 2003) – – Statement of Financial position date(30 Sep 2004)
costs incurred to date 35 million
progress billing 30 million(settled)
Total contract price 125 million
Total contract cost 75 million
The company policy is to accrue for on uncompleted contracts by applying the percentage of completion to the total estimated profit.The percentage of completion is determined by the proportion of the contract costs to date compared to the total estimated costs.
At 30 september 2004, 5 million of the 35 million costs incurred to date related to unused inventory of material on site.
Answer
SOFPCosts to date 30m
Attributable Profit 20m
Costs related to future activity 5m
Less progress billing (30m)
Gross amount due from customers 25mMy question is why he included the cost of unused materials in calculating the amount due from customers?
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i think its the prudence concept being applied here that we don’t understate the costs as and when their incurred. But for % of completion we’ll be using the ‘actual’ costs incurred to date and we’ll deduct unused material from 35m. Hope this helps and good luck for your paper!
I agree. This material are not the cost to date and must be deducted from incurred cost to estimate stage of completion.
he did not include the cost of unused materials to calculate the stage of completion but he included it in calculating the amount due from customers
For me is OK. But I think about another discloser. If company decided buy the materials and didn’t used this at end of the year it’s can be treated as inventory.
In another way this amount is due from customer.
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