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(1) Duggan Co entered into a contract where the performance obligation is satisfied over
time. The total price on the contract is $9m, with total expected costs of $5m.
Progress towards completion was measured at 50% at 30 June 20X7 and 80% on
30 June 20X8.
The correct entries were made in the year ended 30 June 20X7, but no entries have
been made for the year ended 30 June 20X8.
SOLUTION
Working 1 – Contract
$000
Revenue 2,700 (80% × $9m = $7.2m. As $4.5m (50%) in X7, X8 = $2.7m)
COS 1,500 (80% × $5m = $4m. As $2.5m (50%) in X7, X8 = $1.5m)Good day,Pls i don’t understand how the $2.5m in the workings for cost of sale was gotten since 50%of 4000 is 2000.I’ll appreciate if you can explain better
Hi,
The total profit expected at the end of the first year is $4.0m (9 – 5) and we then recognise 50% of that profit, i.e. the $2.0m.
We use the 50% to calculate the amount of revenue to be recognised, giving $4.5m (50% x $9m), and then the $2.5m comes as the balancing figure for the costs. This is the difference between the revenue of $4.0m and the profit of $2.0m.
Thanks
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