Revenue

TYU 6 On 1 January 20X1 Amir entered into a contract with a customer to construct a stadium for consideration of $100m. The contract was expected to take 2 years to complete. At 31 December 20X1 Amir had incurred costs of $24m. Costs to complete are estimated at $20m. In addition to these costs, Amir purchased plant to be used on the contract at a cost of $16m. This plant was purchased on 1 January 20X1 and will have no residual value at the end of the 2 year contract. Depreciation on the plant is to be allocated on a straight line basis across the contract. Amir measures progress on contracts using an output method, based on the value of work certified to date. At 31 December 20X1, the value of the work certified was $45 million, and the customer had paid $11.4m. Required: How should this transaction be accounted for in the year ended 31 December 20X1? SOLUTION Overall contract $000 Price 100,000 Costs to date (24,000) Costs to complete (20,000) Plant cost (16,000) –––––– Overall profit 40,000 Statement of profit or loss $000 Revenue ($100,000 × 45%) 45,000 Cost of sales (24,000) Depreciation ($16,000 × ½) (8,000) –––––– Profit 13,000' Good day,Please i don't understand why the depreciation of the plant wasn't also removed from the contract revenue. I'll appreciate if you can explain better