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Revenue Recogniton

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Revenue Recogniton

  • This topic has 5 replies, 2 voices, and was last updated 1 year ago by P2-D2.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • April 20, 2021 at 12:07 pm #618290
    Sallywa
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    Yling entered into a contract in respect of which performance obligations are satisfied over time on 1 January 20×4. The contract is expected to last 24 months. The price which has been agreed for the contract is $5M. At 30 September 20×4 the costs incurred on the contract were $1.6M and the estimated remaining costs to complete were $ 2.4M
    On 20 September 20×4 Yling received a payment from the customer of $1.8M which was equal to the total of the amounts invoiced. Yling calculates the stage of completion of its performance obligations on contracts on the basis of amounts invoice to the contract price

    What amount would be reported in Yling’s statement of financial position as at 30 September 20×4 as the contract asset arising from the above contract?

    Why don’t we subtract the costs to date and costs to complete in this scenario?

    April 21, 2021 at 9:16 pm #618452
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6473
    • ☆☆☆☆☆

    Hi,

    We are looking at the SFP and the contract asset, so we look at the costs to incurred plus the profit to date.

    Deducting the costs to date and costs to complete is done when looking to work out the profit to date that is then recognised through profit or loss over the contract life.

    Thanks

    April 22, 2021 at 8:51 am #618499
    Sallywa
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    This is the answer in the text book.

    Revenue Recognised ( 5m X 38%) 1900
    Less amounts invoiced (1740)
    Contract Asset 160

    Why haven’t they deducted the costs to date and costs to complete? And why wasnt the profit to date added to the costs incurred?

    April 24, 2021 at 1:13 pm #618717
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6473
    • ☆☆☆☆☆

    This is an alternative way of looking at the contract asset and much easier to work out too.

    Thanks

    April 25, 2021 at 8:05 pm #618840
    Sallywa
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    I dont understand why costs to complete and costs to date was not deducted. Please explain

    April 29, 2021 at 8:57 pm #619223
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6473
    • ☆☆☆☆☆

    Because the contract asset is measured at the amount of revenue recognised, therefore not needing to look at the amounts that you mention.

    Thanks

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