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Hello Mike , my calculation in Q 10 of cost recognised is
(1 600 000 + 550 000) x 80%= 1 720 000.The correct answer shows 1 750 000 , were I did mistake. Also in Q 9 cost recognised I cant get correct answer. Thanks.The questions in the exam are computer selected at random from a bank of more than 200 so there’s no way I could find your specific questions
However, I can take an educated guess at your question on Q10
Am I correct in thinking that the contract is for $2 million?
If so, the company is predicting an overall loss on the contract of $1,750,000 and that loss should be recognized IN FULL as soon as its foreseen
Contract value $2 million less overall estimated costs of $2,175,000 leaves us with costs to recognize of $175,000
That MAY not be correct because I don’t have the question as explained at the start of this post!
Ok?
Thank you Mike for your answer , but it was other Q for revenue and cost recognition .
As I remember it was 1 600 000 – cost of contract at date, include 50 000 period s..,
550 000 to complete contract , 80 % complete.
So my wrong calulation is (1 600 000 + 550 000) x 80%= 1 720 000.The correct answer shows 1 750 000.So my answer is in fact correct? A 2m contract, 50,000 period specific, other costs to date of 1,550,000 and further costs to complete of 550,000. That gives TOTAL costs on the contract of 1,550 + 50 + 550 = 2,150 and the contract I guess was for $2,000,000
So working W1 looks like this
Revenue recognised 80% * 2,000,000 = 1,600,000
Period specific 50,000
General costs ?Forecast loss $150,000
Therefore costs to be recognised are $1,600,000 + $150,000 = $ 1,750,000
Where losses are forecast, we take account of the entire forecast loss
In addition, when dealing with the period specific costs, we take 100% of those in the year to which they relate
Is that ok now?
You’re welcome – I just hope that it has helped. There is an example of loss recognition in full in the course notes and it always causes students confusion (“Does anyone know where that figure of $750,000 has come from?”)
The answer continues to be: it’s because a loss is forecast and must be recognised in full as soon as the loss is foreseen
Ok?
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