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Revenue question Kaplan

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Revenue question Kaplan

  • This topic has 1 reply, 2 voices, and was last updated 4 years ago by P2-D2.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • November 26, 2020 at 1:18 pm #596521
    pateladam
    Member
    • Topics: 17
    • Replies: 9
    • ☆

    on 1 october 2018 pricewell entered into a contract to construct a bridge over a river. The performance obligation will be satisfied over time. The agreed price of the bridge is $50m and construction was expected to be completed on 30 Sep 2010. the 14.3m in the trial balance is made up of:
    Materials,labour and overheads 12000
    Specialist plant acquired 1 Oct 2008 8000
    Payment from customer -5700

    The sales value of the work done at 31 march 2019 has been agreed at 22m and the estimated cost to complete ( excluding plant deprecn) is 10m. the specialist plant will have no residual value at end of the contract and should be depreciated on a monthly basis. pricewell recognises progress towards satisfaction of the performance obligation on the outputs basis as determined by the agreed work to date compared to the total contract price.
    Pricewell revenue include 8m for goods it sold acting as an agent for Tribly, pricewell earned commision of 20% on these sales and remitted the difference of 6.4m included in cost to tribly.

    Hi Sir, please could you help as to what revenue, contract asset, deprecation and Cos will be for march 19. There answer is

    Revenue;15600 ( 22000-6400)
    COS: 6800 ( 13200-6400)
    Contract asset: 17100
    Cost to date 14000 ( 12000+2000 depcn)
    profit to date 8800
    payment ( 5700 )

    im a little confused as why depreciation is added to the cost to date, also why it us not minused off contract asset? also why is the 6400 agent sales minus off and not 8000 as that is what is recognised in revenue with the 1600 difference being in interest income?

    Sorry for the long paragraph question. thankyou

    November 28, 2020 at 7:34 am #596796
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7149
    • ☆☆☆☆☆

    Hi,

    Depreciation is a contract cost, so the amount that has been charged will be included in the costs to date. Without the use of this asset we would not be able to generate the revenue so we’re matching the costs against it.

    We cannot recognise money received when working in an agent capacity as revenue. We are merely collecting the cash and transferring it across. The commission earned is recognised as the revenue.

    Hope that clears it up.

    Thanks

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