had events that provide more information about the conditions actually existing

Had events that provide more information about the

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had events that provide more information about the conditions actually existing on December 31, 2014. In this case, we should adjust the balance sheet. To do this, we should calculate first the costs of the manufacturing process for the period between 1 November 2014 and 28 Feburary 2015. In particular, we have (in euros again): 5,000,000 (cost of materials for use on the contract) (4) Depreciation: 3,000,000/12=250,000 250,000*4=1,000,000 (5) Direct labor costs and other production overheads: 300,000*4=1,200,000 (6) General administrative costs should not be taken into consideration. So, in the end of February, the costs are: (4)+(5)+(6)= 5,000,000 + 1,000,000 + 1,200,000= 7,200,000. At this point, it should be underlined that, in order to learn the part (expressed in percentage) of the manufacturing process that has been achieved in the end of 2014 (December 31, 2014). We have: 5,100,000/7,200,000= 0.708 0.708*100=70.8%=approximately 71% At the beginning of this exercise, we have seen that the contract settled a fixed price of 12,000,000 euros for a machine. Therefore, the revenue that is made in the end of 2014 is the following: 71%*12,000,000=8,520,000 In order to find the profit that is made when the machine is manufactured, we subtract the total costs on February 28,2015 from the fixed price of 12,000,000. In particular: 12,000,000- 7,200,000=4,800,000 (profit on February 28,2015). So, we can find the profit that is generated at the end of 2014 (December 31, 2014): 71%*4,800,000=3,408,000 Therefore, the contract should be reported in the statement of financial position in the following way: 5,100,000 (costs on December 31, 2014) + 1,000,000 (costs of purchased material which has not been used yet) + 3,408,000 (profit on December 31, 2014) -3,000,000=6,508,000. This number goes under “current assets”, and especially, under the “amounts recoverable on contracts” account. [3]
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