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Hello Chris.
On 1 October 2008 Pricewell entered into a contract to construct a bridge over a river. The agreed price of the bridge is $50 million and construction was expected to be completed on 30 September 2010. The $14·3 million in the trial balance is:
$’000
materials, labour and overheads 12,000
specialist plant (acquired 1 October 2008) 8,000
payment from customer (5,700)The sales value of the work done at 31 March 2009 has been agreed at $22 million and the estimated cost to complete (excluding plant depreciation) is $10 million. The specialist plant will have no residual value at the end of the contract and should be depreciated on a monthly basis. Pricewell recognises profits on uncompleted contracts on the percentage of completion basis as determined by the agreed work to date compared to the total contract price.
– Could you explain how to calculate the contract asset? I am having some difficulties to follow the workings in the kit.
-Also depreciation on specialist plant is $2,000. Could you explain how this amount has been calculated.
Thanks.
Hi,
I can’t find the question you’re refering to in the kit but I’ll explain what I can from what you’ve given above.
The contract assets is the costs incurred to date (12,000) plus the profit recognised to date less the payment from the customer (5,700).
The depreciation on the specialist machinery is done over two years, so 4,00 per annum. As we are only 6-months into the project then we recognise only 6/12 of it and hence the 2,000.
Thanks
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