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Hello, in note #2 with the construction contract , working # 2 (sofp), for the costs to date …why isn’t the cost of the specialist plant included ?
Because the cost is being spread over the life of the contract / asset. The asset has been used for 6 months out of a total estimated life of 2 years. So, to be included within costs is 6 / 24 * $8,000 = $2,000
Hello Mike, regarding point…..
#2) I followed the format in the ot notes for construction contracts. I noticed that in this case there is no working 3. How did we know that the amount received from customer of $5,700 was the same as amount invoiced (used in working #2 of the format in the ot notes)
# 4) I am trying to understand but still confused regarding your working for the preference shares. Why are we calculating interest on the $41,600 as per the tb and not the $40,000 as per the note? The $40,000 is what was actually issued . Even though I saw your video where you added the interest of 4 and minused the 2.4, i don’t understand the reasoning behind the adding of the 4 (interest). Can you please explain?
#2 only very rarely does the examiner have “amounts invoiced” different from “amounts received”
Don’t worry about it
#4 the effective rate of the preference shares is 10% even though the face value has a coupon rate of 6%
$40,000 were issued, effective interest charge is $4,000, interest actually paid is $2,400, so preference shares carried forward are $41,600 (did you not wonder why it’s $41,600 on the trial balance instead of $40,000?)
Effective rate of 10% on $41,600 is $4,160. Actual interest paid is 6% x $40,000 = $2,400 leaving an amount to carry forward of $41,600 + $4,160 – $2,400 = $43,360
Ok?
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