Tutorial 9 solution (Contract costing) PDF

Preview

Summary

Download Tutorial 9 solution (Contract costing) PDF

Description

Contract Costing Question 2 Year 1 Income Statement Sales Cost of sales Profit

£1,680,000 Per architect’s certificate £1,660,000 (£1,700,000 + £2,450,000) x 40% £20,000

Balance Sheet Trade receivables Amounts due from customers

£168,000 £1,680,000 x 10% £40,000 £1,700,000 - £1,660,000

Year 2 Income Statement Sales Cost of sales Loss

£1,470,000 £3,150,000 - £1,680,000 £1,520,000 See note below - £50,000

The expected costs for completing the contract have increased to £4,230,000 i.e. £1,700,000 (year 1: actual) + £1,430,000 (year 2: actual) + £1,100,000 (year 3: estimate). This will produce a loss of £30,000. IAS 11 requires immediate recognition of losses. A loss of £50,000 is included in year 2’s income statement since a profit of £20,000 was included in year 1. Cost of sales for year 2 is the difference between sales (£1,470,000) and the loss (£50,000) for this contract i.e. £1,520,000. Balance Sheet Trade receivables Amounts due to customers

£315,000 £3,150,000 x 10% - £50,000 See note below

Total actual costs for years 1 and 2 (£1,700,000 + £1,430,000) less costs charged to the income statement (£1,660,000 + £1,520,000) Year 3 Income Statement Sales Cost of sales Profit

£1,050,000 £4,200,000 - £1,680,000 - £1,470,000 £1,040,000 £1,700,000 + £1,430,000 + £10,000 £1,090,000 - £1,660,000 - £1,520,000

The total loss for the contract is £20,000:   

Year 1: £20,000 Year 2: -£50,000 Year 3: £10,000

Balance Sheet Trade receivables Amounts due from to customers

£420,000 £4,200,000 x 10% £0 £1,700,000 + £1,430,000 + £1,090,000 - £1,660,000 £1,520,000 - £1,040,000

The amount retained £420,000 by the customer (as agreed in the contract) will be paid to Renaissance Renovations in the near future if there are no outstanding issues in relation to the contract.

Question 3 Year 1 Income Statement Sales Cost of sales Profit

£1,800,000 Per architect’s certificate £1,650,000 (£1,700,000 + £3,800,000) x 30% £150,000

Balance Sheet Trade receivables Amounts due from customers

£90,000 £1,800,000 x 5% £50,000 £1,700,000 - £1,650,000

Year 2 Income Statement Sales Cost of sales Profit

£3,000,000 £4,800,000 - £1,800,000 £2,710,000 (£1,700,000 + £2,800,000 + £950,000) x 80% - £1,650,000 £290,000

Balance Sheet Trade receivables Amounts due to customers

£240,000 £4,800,000 x 5% £140,000 See note below

Total actual costs for years 1 and 2 (£1,700,000 + £2,800,000) less costs charged to the income statement (£1,650,000 + £2,710,000)

Year 3 Income Statement Sales Cost of sales Profit

£1,200,000 £6,000,000 - £3,000,000 - £1,800,000 £1,040,000 £1,700,000 + £2,800,000 + £900,000 - £1,650,000 - £2,710,000 £160,000

Balance Sheet Trade receivables Amounts due from to customers

£300,000 £6,000,000 x 5% £0 See note below

Total actual costs for years 1, 2 and 3 (£1,700,000 + £2,800,000 + £900,000) less costs charged to the income statement (£1,650,000 + £2,710,000 + £1,040,000) The total profit for the contract is £600,000:   

Year 1: £150,000 Year 2: £290,000 Year 3: £160,000

The money retained by the customer (as agreed in the contract) will be paid to Renaissance Renovations in the near future if there are no outstanding issues in relation to the contract....