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Dear Sir,
Below is one of the questions from the MCQ bank. Can you help to show the workings? What is the specific treatment for the exclusive plant? Should the cost be recoginised as part of the contract price? Thanks for your kind help and support.
Ning
On 1 Jan 2013, Agnes entered into a construction contract that is expected to last 36 months. The agreed price of the construction work was $20m. As at 30 Sep 2013 the cost incurred on the contract were $4m and the estimated costs to complete the contract were $12m.
In addition to the above cost, on 1 July 2013, Agnes acquired for exclusive use on the contract an item of plan for $1m. This plant has an estimated useful life of two years and will scrapped at the end of that time.
On 20th Sep 2013, Agnes received a payment for the customer of $7m which amount was equal o the progress billing to date. Agnes calculates the stage of completion on construction contracts on the basis of progress billings as a proportion of the contract price.
What amount would be reported in Agnes’ statement of financial position as at 30th Sep 2013 for the amount due to/from the customer for the above contact?
A: $1.6m liability
Cannot find the questions from the bank as they are all random. I just copied down the suggested answer. Sorry.
Working 1
Revenue recognised 7/20 (35%) x $20 million contract value is $7 million
Costs recognised 35% x $12 million estimated total costs is $4.2 million
Plant costs for the period 3 months / 24 months x $1 million is $0.125 millProfit recognised is therefore $2.675
Working 2
Costs to date $4 million + $0.125 is $4.125
Attributable profit is $2.675Sub-total $6.8 million
Less amounts invoiced $7 millionAmount due to customer $0.2
Ok?
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