Hi sir, for construction contracts we use the four step approach .
My lecture notes states that if a plant is used in the constuction contract, the depreciation of the plant should be included within the contract costs in step 1.
But my complete textbook says otherwise. In the answer key , they have included the entire cost of the plant within contract costs in step 1.
Im confused. So which treatment should i follow sir ?
Ask the Tutor ACCA FR
Revenue: Construction contracts
Well, I assume that, having included the entire cost of the plant in step 1, the answer then also takes appropriate steps to spread that cost over the respective periods during which the contract is on-going and the plant is being used up
Am I wrong?
Yes sir. Correct. They did spread out the cost. So, can i just do my lecture notes method instead ? I just include the depreciation to date and depreciation to complete as part of the contract costs.
That seems ok to me - it has the same effect as if you had included the whole of the plant value to be used in the contract and then deducted the depreciation not yet incurred to arrive at plant expense to date
Sign in to reply to this topic.