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Need Urgent help with this Understanding

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Need Urgent help with this Understanding

  • This topic has 4 replies, 2 voices, and was last updated 7 years ago by MikeLittle.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • November 2, 2015 at 6:44 pm #280126
    jazibali
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    It’s from Kaplan F7, IFRS 15 Revenue Chapter, Understanding 5.
    Question:
    On 1 January 20×1, Castle enters into a contract with customer to construct a specialised building for consideration $10m. Castle is not able to use building themselves at any point during construction.

    At December 20×1 Castle has incurred cost of $6m. Cost to complete are $2m. Castle decides to measure progress towards completion based on cost incurred.

    To date, Castle has received $3m from Customer
    Required: How should this transaction be accounted for in the year ended 31 december 20×1?

    Now when i solved the question i did following which give me profit while answer at back says loss.
    My answer:
    1- Overall Contract:
    Price: $10m
    less costs to date: ($6m)
    less cost to complete ($2m)
    _____
    Profit: $2m

    While book says cost to complete is $6m giving a loss of $2m. When i saw answer i was shocked. Please tell i solved it correctly or i have made a mistake

    November 2, 2015 at 7:36 pm #280135
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22705
    • ☆☆☆☆☆

    My answer would be:

    Revenue recognised (60% x $10m) 6,000,000
    Costs recognised (60% x ($6 + $2)) 4,800,000

    Profit recognised 1,200,000

    Probably what Kaplan has done is mistyped the costs to complete figure and maybe it should be $6m to complete on top of the $6m already spent. Maybe

    Best I can do, sorry!

    November 2, 2015 at 7:53 pm #280137
    jazibali
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    Thanks a lot Sir Mike Little. I thought i made a mistake. I was really confused when i saw answer. My answer is same $12,00,000 Profit.

    November 2, 2015 at 7:54 pm #280138
    jazibali
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    Also i am sorry for putting this urgent heading as i haven’t read the rules before posting this. Thanks a lot once again

    November 2, 2015 at 10:49 pm #280149
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22705
    • ☆☆☆☆☆

    You’re welcome

  • Author
    Posts
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