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Hi
Re Revenue Example 7 (lecture video)
Chis has calculated 43,200 of costs to be recognised in the P/L (Total rev recognised-profit TD). Based on % completed.
However, when calculating the contract asset he has used costs TD given in question of 52,000.
Can you advise why these are different?
Per the BPP workbook a contact asset is calculated as:
Revenue Recognised (based on % completed) X
Less amounts invoiced per customer (X)
Contract asset XIn the case of this question would be (using BPP method) : 56,000-44,000 = 12,000
(OT says): 56,000+12,800-44,000= 12,800Can you please advise what contact asset figure is correct and why these are different?
Also, can you tell me what situations give rise to a contract liability?
And, does the 8,000 of inventory show anywhere in current year, SFP as inventory?Thank you
JamesHi,
The amounts recognised in the profit or loss are not the same as what has been incurred, hence the two different figures.
A contract liability will arise where we have invoiced the customer more than the revenue we have recognised. It is effectively showing the amounts that we need to repay the customer f the project were to be stopped now.
Thanks
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