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March/June 2016 Sample question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › March/June 2016 Sample question

  • This topic has 3 replies, 2 voices, and was last updated 8 years ago by MikeLittle.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 17, 2016 at 4:01 pm #349609
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    Dear Mike

    Please help to understand why the cost to date of 15M has not been included to arrive to the profit?

    The contract asset is comprised of contract costs incurred at 31 March 2016 of $15M less payment of $10M from the customer. The agreed transaction price for the total contract is $30M and the total expected costs are $24M. Downing Co uses an input method based on costs incurred to date relative to the total expected costs to determine the progress towards completion of its contracts.

    Solution

    62.5% complete (15/24*100) therefore the profit of the year is 3.75 (6000*62.5%)
    18.75million is recognized as revenue (15.000+3.750) and 15000 as cost of sale.

    The contract asset is 8.75 (18.750-10.000)

    My understanding is

    Revenue
    Less
    Cost to date
    estimated cost
    =
    Profit

    % might be apply to calculate the profit recognized.

    I really appreciate your help.

    Gabbi

    November 17, 2016 at 4:59 pm #349629
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    This is one of those examples where the examiner tells you the profit and therefore you work out the revenue from that profit figure

    Instead of approaching it as Revenue – Cost of Sales = Profit, this time we know that profit is 62.5% (percentage complete) of total profit on the contract (62.5% x $6,000 ($30,000 – $24,000) = $3,750)

    And we know that costs to date are $15,000

    Therefore Revenue becomes the balancing figure

    Gabbi, you need to be a bit flexible when reading questions. they will not all be worded in exactly the same way

    As we say in England (and probably in Ireland too) there’s more than one way to skin a cat

    And there’s more than one way for the examiner to test you

    And there’s more than one way to arrive at a profit figure when considering contract accounting

    Is that ok for you?

    November 21, 2016 at 2:13 pm #350330
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    Dear Mike,

    Thanks and Regards

    Gabbi

    November 21, 2016 at 3:57 pm #350379
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    You’re welcome

  • Author
    Posts
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