- May 17, 2018 at 6:28 pm #452089chrisi04Member
- Topics: 49
- Replies: 23
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:
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.
I cannot understand the reasoning behind the depreciation for the acquired plant is worked out.
I only understood that we need to depreciate for 6 months (from 1 Oct 2008 till 31 March 2009). I cannot understand why there is 1/2.
$8,000 x 1/2 x 6/12 = $2,000
ChriMay 18, 2018 at 8:10 am #452647Kim SmithKeymaster
- Topics: 100
- Replies: 6784
Hi Chris you appear to be looking at an original past exam question which has not been updated to take account of the change in exam format (Qs in Section C will be only 15 marks, not 25 marks) or, more importantly, technical changes in IFRS. I suggest you disregard it as accounting for construction contracts will be examined under IFRS 15 (not IAS 11) and also in this Q, the lease would be accounted for under IFRS 16 (not IAS 17).
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