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Revenue – output method

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Revenue – output method

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by P2-D2.
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  • Author
    Posts
  • April 10, 2021 at 3:20 pm #616680
    glorytohk
    Member
    • Topics: 2
    • Replies: 0
    • ☆

    I brought the official textbook from BPP. There is very little detail about the output method in the textbook. When I watched the video from Opentution, I was wondering about the accounting treatment.

    In example 7 (Noah’s company) in the video, the cost recognised in SPL is $43,200. However, the question mentioned that the cost incurred was $52,000. Why the cost was UNDERESTIMATED under the output method? I don’t think it made any sense.

    Can you explain more about the difference of $8,800 ($52,000-43,200). The incurred cost won’t show on the SPL. Is it ridiculous?

    April 17, 2021 at 9:13 am #618006
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6473
    • ☆☆☆☆☆

    Hi,

    The costs that have been incurred might not necessarily have been used as part of the contract, so the company could have purchased materials (say) but they have not yet been used this period to generate revenue, hence not recognised in profit or loss.

    The extra costs will be recognised as part of the contract asset on the SFP.

    Thanks

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