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Could you please help me to understand the following:
Text:CN started a three year contract to build a new university campus on
1 April 20X7. The contract had a fixed price of $90 million. CN
incurred costs at 31 March 20X8 of $77 million and estimated that a
further $33 million would need to be spent to complete the contract.
CN has a right to receive regular payments under the contract. To
date, CN have received $55 million. CN uses an input method
based on costs to calculate progress of the contract.I came to :WIP = 6
Calculations:
Cost to date=83
Cost recognized=77
WIP =6together with Provision of 6 and Trade receivable of 8
But in the text they omit this WIP. Can you please explain what is the reason for that ?
Hi,
Where do you get the questions from? Why are you calculating WIP? You need to be calculating a contract asset under IFRS15. This is calculated as follows:
Costs to date X
Profits/(losses) to date X/(X)
Amounts billed to date (X)
Contract asset XThanks
Thanks for replying,
I follow the following guide : If the revenue recognised exceeds the cash received, there will be a contract asset. If the contract costs to date exceed the cost of sales recognised, this will be treated as workinprogress. This can be included within the contract asset. This will be shown as a separate asset within current assets.
The variants given are:
Current assets Current liabilities
A Contract asset/Inventory 6 Contract liability/Provision 6
B Contract asset/Trade receivables 8 Contract liability 20
C Contract asset/Inventory 6 Contract liability 20
D Contract asset/Trade receivables 8 Contract liability/Provision 6Correct answer is D
My calculations:
Cash received 55
Cash recognized 63
Trade receivable 8
so Asset is 8Revenue 63
COS 77
COS (provision) 6
Loss -20
so Liability is 6However, variant A gives also Inventory =6 option and I calculate WIP as following:
Cost to date 83 (77+6)
Cost recognized 77
Inventory 6Therefore, I could choose variant A. So, I just would like to understand, is my calculation of WIP wrong ? if it is right then variant A is potentially correct, isn’t it?
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