AC2101 S1 2014 Seminar 18 Revenue.pptx

Contract price 6m to be completed in 4 yrs at end of

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Unformatted text preview: recognized immediately 3.  Where outcome cannot be estimated reliably, recognized revenue is limited to the cost incurred (i.e., no profit). An expected loss on the construction contract should be recognised as an expense. 30 FRS11:22,32,36 15 Scenario 2: Current estimates à༎ Net Loss Illustration 1 – Project B §༊  Contract price = $6m; to be completed in 4 yrs §༊  At end of Year 20x3 §༊  Costs incurred for the year = $4620k- $2750k=$1870k §༊  Billings for the year = $4500k - 2000k = $2500k §༊  Collections for the year = $3300k - $1600k = $1700k 31 Do JE1 to JE3 first for 20x3 •  JE1: Incurrence of costs Dr Construction- in- progress (CIP) $1,870k Cr Cash/payable/acc depreciation/etc. ($1,870k) In SFP •  JE2: Progress billings Dr Account receivable $2,500K Cr Progress billings ($2,500k) In SFP •  JE3: Cash collection Dr Cash Cr Account receivable $1,700k ($1,700k) In SFP 32 16 Scenario 2: Current estimates à༎ Net Loss Illustration 1 – Project B §༊  Contract price = $6m; to be completed in 4 yrs §༊  At end of Year 20x1, 20x2 §༊  Overall profitability is still positive. §༊  Same as Project A §༊  At the end of 20x3 Ø།  Cumulative costs incurred = $4,620k Ø།  Estimated additional costs- to- complete = $1,980k Ø།  Total estimated costs = $6,600 Ø།  Total Estimated LOSS on Project = $6m – ($6.6m) = - $0.6m Ø།  Overall profitability is NEGATIVE!!! Ø།  Under FRS 11 para 36, the expected loss should be recognised as an expense IMMEDIATELY!!! 33 Scenario 2: Current estimates...
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This document was uploaded on 02/10/2014.

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