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- January 31, 2021 at 9:01 am #608640
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
JamesFebruary 2, 2021 at 6:27 pm #608885Hi,
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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