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- November 26, 2020 at 11:05 pm #596595pateladam
- Topics: 13
- Replies: 9
On 1 oct 2018 pricewell entered into a contract to construct a bridge over a river. the performance obligation will be satisfied over time. the agreed price of the bridge is 50m and construction was expected to be completed on 30sep 2010.
The 14.3m in the TB consists of:
Materials, labour and overheads 12000
specialist plant acquired 1 oct 2008 8000
Payment from customer -5700
The sales value of the work done at 31 march 2019 has been agreed at 22ma and the estimated cost to complete ( excl plant depcn ) is 10m, the specialist plant will have no residual value at the end of the contract and should be depreciated on a monthly basis, pricewell recognises progress towards satisfaction of the performance obligation on the outputs basis as determined by the agreed work to date compared to the total contract price.
Pricewells revenue includes 8m for goods it sold as an agent for trbily, pricewell earned commission of 20% on these sales and remitted the difference of 6.4m ( included in COS) to tribly.
the Answer they have is
Contract asset: 17100 ( Cost to date 12000+2000, profit to date 8800, payment from customer ( 5700)
Hi SIR, Sorry for the long paragraph, plz could you explain why depcn is added to the contract asset also why it would not be as a minus in COS, also in terms of revenue why 6.4m is deduced and not 8m with the difference of 1.6m in interest income as it is commission recieved? Another thing is they have done 44% of the cost to work out amount in profit and loss would it not be 44% of the profit to date and revenue with cost being the balancing figure?
Sorry for the long question sir but really struggling to get my head round why they have worked it in this way?November 28, 2020 at 8:01 am #596804P2-D2Keymaster
- Topics: 4
- Replies: 4882
As we have the depreciation adjustment then we cannot use the normal methodology of including the cost as a balancing figure. We’d need to look at 44% of the costs to match up to the revenue and then adjust for the depreciation figure.
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