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I am struggling with recognition of profit for performance/obligation recognized overtime:
BPP revision kit 2021:
Bridgenorth Co case:
B. Co has undertaken a $5 million contract to repair tunnel, contract sign on 1 January x8 and expect to take 3 years. contract measured according % of work completed as certified by the surveyor. The customer gains control of the asset as each stage of the tunnel is completed. B CO. has enforceable right to payment for performance complete to date.
Total contract value: 5000
Costs to date: 2300
Estimated cost to completion: 2100
Work invoiced to date: 2000
cash received to date: 1500
% certified complete: 50 %
Question: what profit recognizedNow there is nearly exactly the same quesiton in BPB revision kit 2020 (just change the % certified complete to 40%).
But there were 2 answers:
in BPP 2021: Answer is
revenue = 50% x 5000 = 2,500
Expenses = -2300
Profit = 200While answer in BPP 2020 is: (the actual percentage in BPP 2020 is 40%, I took 50% for easy comparison)
revenue= 50%x5000= 2,500
Expenses= 50% (2300+2100)= 2,200
Profit = 300Can you help to advise which way is correct?
Thank you very much
Hi,
I think the original one is correct as they have worked out the total profit and then applied the percentage complete.
Is the question exactly the same, word for word? I only ask as there could be something in the final sentence of the question that means they have treated things slightly differently.
Thanks
Dear Sir,
Thank you very much for your response, this is what different between those 2: I just realized that there is one sentence added for 2021 “The customer gains control of the asset as each stage of the tunnel is completed.”
Can you help to advise that makes the 2 answers different?2021:
Bridgenorth Co undertaken a 5 million contract to repair a railway tunnel. The contract was signed on 1 January 2008 and the work is expected to take three years. This is a contract in which performance obligations are satisfied overtime and progress in satyisfying performance obligation is to be measured according to % of work completed as certified by a surveyor. The customer gains control of the asset as each stage of the tunnel is completed. B Co has an enforceable right to payment for performance completed to dateAt 31 Dec 2008 and 2009, the details of the contracts were as folllow:
2009
Total contract value: 5000
Costs to date: 3600
Estimated cost to completion: 700
Work invoiced to date: 3000
cash received to date: 2400
% certified complete: 80 %2008
Total contract value: 5000
Costs to date: 2300
Estimated cost to completion: 2100
Work invoiced to date: 2000
cash received to date: 1500
% certified complete: 50 %Question: what profit recognized in 2008?
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Question 2020
Bridgenorth Co undertaken a 5 million contract to repair a railway tunnel. The contract was signed on 1 April 2008 and the work is expected to take two years. This is a contract in which performance obligations are satisfied overtime and progress in satyisfying performance obligation is to be measured according to % of work completed as certified by a surveyor. B Co has an enforceable right to payment for performance completed to dateAt 31 Dec 2008 and 2009, the details of the contracts were as folllow:
……. Number exact same as 2021 except certified complete as of 2008 is 40%
Question: Profit recognized for year ended 31 Dec 2008
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