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I have a question regarding revenue.
I have noticed in Open tuition we apply the stage completion once the profit has been calculated for SPL. For example, if the stage of completion is 10% and the profit is £1000, then the answer would be £100.
However, in some cases we apply the stage of completion instantly to Revenue. This is done in the loss making example in OT but I have seen in my revision kits it applies straight to revenue even in profit examples.
And I have found in some cases in my revision kit the stage of completion is applied to Revenue and cost of sales.
If you need to me to state specific examples I can do so, but I just wanted to know when to apply the stage of completion. Is there a different case for different scenarios? and if so, what is the reasoning?
Any response would be appreciated, thank you!
Hey. The stage of competing is the second step, so you would apply it to revenue and profit to then get your balancing figure of cost of sales, these are the figures you would put in the financial statements so technically it applies to revenue, costs and profit. If you have an example maybe I can see what you mean?
Do you have access to the Kaplan exam kit? If so, please refer to question 104.
In this example the progress % is applied only to profits and not to the revenue.
If the question asked for Revenue would you use the figure of 1.8m (0.36 x 5) and then have costs of sales to 0.8m to bring the profit back to 1? I’m assuming the % is not calculated on Revenue because its not asked in the question? But if it did ask, would you do what I just mentioned? Please let me know if I’ve understood correctly?
If you don’t have access to this please let me know so I can type the question up in more detail. Thanks.
I have the kit. The kaplan answer has just done a shortcut to get to the 1.8m. I think what is confusing is the work certified to date is the 1.8m which is actually the SAME as the revenue 5m x 36%
Step 1 – I did;
revenue 5m
Costs to date (1.6m)
Costs to compete (2.4m)
Profit 1mThen the stage of completion is 36%, so we then apply that to revenue, profit and costs;
Revenue 5m x 36% (1.8m the same as work certified, which is a SPL figure, which the answer in the kit has used, but not used it from the revenue x 36% figure, they used the 1.8m straight from the info which is still correct)
Profit 1m x 36% = 360k
So costs is (1.8m – 360k) 1.44mThen we can do step 4 for the financial position, which would be the
Costs to DATE – 1.6m
Plus profit at 36% 360k
Less the billed amount (which so happens to be the amount of work certified so far)
(1.8m)So the asset will be 160k
I would always use the stage of completion on all figures as taught
Hope that helps?Thanks that makes sense, I guess it doesn’t really matter in this question whether you do it or not because it doesn’t change the profit figure.
Thanks for your help!
I have a question regarding revenue.
I have noticed in Open tuition we apply the stage completion once the profit has been calculated for SPL. For example, if the stage of completion is 10% and the profit is £1000, then the answer would be £100.
However, in some cases we apply the stage of completion instantly to Revenue. This is done in the loss making example in OT but I have seen in my revision kits it applies straight to revenue even in profit examples.
And I have found in some cases in my revision kit the stage of completion is applied to Revenue and cost of sales.
If you need to me to state specific examples I can do so, but I just wanted to know when to apply the stage of completion. Is there a different case for different scenarios? and if so, what is the reasoning?
Any response would be appreciated, thank you!
Hi,
I have another example of a Revenue question where the progress completed isn’t calculated against Revenue.
please refer to example 381 (Pricewell) from the Kaplan study text. In the Revenue figure on the SPL it includes it without the stage of completion.
Please could you advise because as per your example we would always use the stage of completion for revenue but this isn’t used in this example.
Thanks.
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