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Hi sir, lets take for example Santa company is on a contract to build a factory for the Easter Company.
Note 1: And during the contract, Easter changed the specifications of the air conditioning systems.The changed specifications has been agreed but a new contract with the new price has not yet been signed , although an increase in the contract price of around $100 000 is highly probable.
I just want to know, if the new specifications have not been agreed upon, would the $100 000 still have to be accounted for? Also, does signing a new contract with a new price have any effect on whether the $100 00 have to be accounted for ?
Note 2: A strike at Santa caused a delay for which the penalty in the original contract was $30 000. This was agreed by both parties.
If this was not agreed , would the $30 000 still have to be accounted for ?
The key expression in note 1 is “highly probable” This suggests a probability in excess of 95% and should thus be recognised within the actual values of the workings
The actual signing of the revised contract simply confirms the requirement to account for the $100,000 … providing, of course, that the receipt of the amount is not in any doubt and that Easter is most probably going to be able to pay the contract price
In note 2, there seems to be no question about the amount and the fact of the liability. This $30,000 could be either liquidated damages (where the amount of damages is agreed at the time of signing the contract – that’s part of F4 law!) or it’s computed damages subsequently assessed and that have now been agreed.
Do we need to account for it? Yes, we do!
OK?
Okay. So for note 2 , even if the parties don’t agree to it , the $30 000 would have to be accounted for since its a liability right ?
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