- 15 Marks
FR – L2 – Q15 – Financial Reporting Standards
Question
On 31 March 20X9, Annabel Ltd had four construction contracts in progress. Details are set out below.
| Contract A | Contract B | Contract C | Contract D | |
|---|---|---|---|---|
| GH¢000 | GH¢000 | GH¢000 | GH¢000 | |
| Contract price | 1,850 | 750 | 960 | 800 |
| Costs to date | 1,490 | 590 | 405 | 120 |
| Estimated future costs | 25 | 600 | 480 | |
| Revenue taken in earlier years | 990 | 100 | ||
| Cost of sales recognised in earlier years | 800 | 100 | ||
| Progress billings to date | 1,850 | 690 | 650 | 100 |
| Cash received to date | 1,850 | 600 | 600 | 100 |
Contract A was completed during the year.
Contract C commenced on 1 May 20X8.
Contract D commenced on 1 January 20X9. It is not considered possible on 31 March 20X9 to assess the outcome of Contract D with any certainty.
Annabel Ltd recognises revenue based on the proportion of costs incurred to date to expected total costs.
Required:
Show the amounts that would be recognised and presented for each contract in the financial statements of Annabel Ltd for the year ended 31 March 20X9 and show the total balances in those financial statements. Work to the nearest GH¢000.
Answer
Contract A
Statement of profit or loss
| GH¢000 | |
|---|---|
| Revenue (1,850 – 990) | 860 |
| Cost of sales (1,490 – 800) | (690) |
| Gross profit | 170 |
Statement of financial position: There are no balances in the statement of financial position as the full contract amount has been received.
Contract B
Statement of profit or loss
| GH¢000 | |
|---|---|
| Revenue ((95.9% × 750) – 100) | 619 |
| Cost of sales (590 – 100) | (490) |
| Gross profit | 129 |
Statement of financial position
| GH¢000 | |
|---|---|
| Contract asset | |
| Revenue recognised last year | 100 |
| Revenue recognised this year | 619 |
| Progress billings | (690) |
| 29 | |
| Receivables | |
| Total billings | 690 |
| Cash received | (600) |
| 90 |
Contract C
Statement of profit or loss
| GH¢000 | |
|---|---|
| Revenue (40.3% × 960) | 387 |
| Cost of sales | (405) |
| Provision for loss (as a balancing figure) | (27) |
| Gross loss | (45) |
Statement of financial position
| GH¢000 | |
|---|---|
| Contract liability | |
| Revenue recognised this year | 387 |
| Progress billings | (650) |
| (263) | |
| Receivables | |
| Total billings | 650 |
| Cash received | (600) |
| 50 | |
| Provision | 27 |
Contract D
Statement of profit or loss
| GH¢000 | |
|---|---|
| Revenue | 120 |
| Cost of sales | (120) |
| Gross profit/(loss) | nil |
Statement of financial position
| GH¢000 | |
|---|---|
| Contract asset | |
| Revenue recognised this year | 120 |
| Progress billings | (100) |
| 20 | |
| Receivables | |
| Total billings | 100 |
| Cash received | (100) |
| nil |
Total balances for inclusion in the financial statements
Included in statement of profit or loss
| A | B | C | D | GH¢000 | |
|---|---|---|---|---|---|
| Revenue | 860 | 619 | 387 | 120 | 1,986 |
| Cost of sales | (690) | (490) | (405) | (120) | (1,732) |
| Gross profit | 170 | 129 | 254 |
Included in statement of financial position
| A | B | C | D | GH¢000 | |
|---|---|---|---|---|---|
| Contract asset | 29 | 20 | 49 | ||
| Receivables | 90 | 50 | 140 | ||
| Contract liability | 263 | ||||
| Provision | 27 | 27 |
Workings
(1) Total profit expected on the contracts
| A | B | C | D | |
|---|---|---|---|---|
| GH¢000 | GH¢000 | GH¢000 | GH¢000 | |
| Contract price | 1,850 | 750 | 960 | 800 |
| Costs to date | (1,490) | (590) | (405) | (120) |
| Estimated future costs | (25) | (600) | (480) | |
| Estimated total costs | (1,490) | (615) | (1,005) | (600) |
| Total expected profit/(loss) | 360 | 135 | (45) | 200 |
(2) Proportion of work completed to date (costs to date/total costs)
| A | B | C | D | |
|---|---|---|---|---|
| 1,490 / 1,490 | 590 / (590 + 25) | 405 / (405 + 600) | ||
| 100% | 95.9% | 40.3% |
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