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