Chapter 16 Inventories and Construction Contracts

Required:

Prepare extracts of the income statement and statement of financial position for Torrent in respect of the above construction contracts for the year ended 31 March 20X6. (12 marks)

(ACCA 2.5 Financial Reporting June 2006 Q5(a))


Question 5
HKAS 11 Construction contracts deals with accounting requirements for construction contracts whose durations usually span at least two accounting periods.


Required:

(a) Describe the issues of revenue and profit recognition relating to construction contracts.

(4 marks)

(b) Beetie is a construction company that prepares its financial statements to 31 March each year. During the year ended 31 March 20X6 the company commenced two construction contracts that are expected to take more than one year to complete. The position of each contract at 31 March 20X6 is as follows:

The agreed value of the work completed at 31 March 20X6 is considered to be equal to the revenue earned in the year ended 31 March 20X6. The percentage of completion is calculated as the agreed value of work completed to the agreed contract price.

Required
Calculate the amounts which should appear in the income statement and statement of financial position of Beetie at 31 March 20X6 in respect of the above contracts. (6 marks)

(Total = 10 marks)
(ACCA F7 Financial Reporting Pilot Paper Q5)


Question 6
On 1 October 2009 Mocca entered into a construction contract that was expected to take 27 months and therefore be completed on 31 December 2011. Details of the contract are:

Plant for use on the contract was purchased on 1 January 2010 (three months into the contract as it was not required at the start) at a cost of $8 million. The plant has a four-year life and after two years, when the contract is complete, it will be transferred to another contract at its carrying amount. Annual depreciation is calculated using the straight-line method (assuming a nil residual value) and charged to the contract on a monthly basis at 1/12 of the annual charge.

The correctly reported income statement results for the contract for the year ended 31 March 2010 were:

The percentage of completion is calculated as the agreed value of work completed as a percentage of the agreed contract price.

Required:

Calculate the amounts which would appear in the income statement and statement of financial position of Mocca, including the disclosure note of amounts due to/from customers, for the year ended/as at 31 March 2011 in respect of the above contract. (10 marks)

(ACCA F7 Financial Reporting June 2011 Q5)

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