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Dear Sir,
Kindly explain how we get answers stated below 24/48 month (W2) & 15/48 month (W3)
ii) Estimated profit: $’000
Contract price 12,500
Plant depreciation (8,000 x 24/48 months) (4,000)
Other costs (5,500)
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Profit 3,000
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(iii) Contract costs incurred:
Plant depreciation (8,000 x 15/48 months) 2,500
Other costs 4,800
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7,300
––––––It’s all here in this paragraph from the question!
“Plant for use on the contract was purchased on 1 January 2010 (three months into the contract as it was not required at the start) at a cost of $8 million. The plant has a four-year life and after two years, when the contract is complete, it will be transferred to another contract at its carrying amount. Annual depreciation is calculated using the straight-line method (assuming a nil residual value) and charged to the contract on a monthly basis at 1/12 of the annual charge.”
We’re working out figures for the year ended 31 March, 2011 so the plant will have been used for 15 months by that date
The plant has a 4 year life so for the date 31 March, 2011 it will have been in use for 15 months out of that 4 year life – and that’s where 15/48 comes from
The contract is scheduled to be completed on 31 December, 2011 by which date the plant will have been used (since 1 January 2010) for exactly 2 years or 24/48 out of its useful life of 4 years
OK now?
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