- 3 Marks
FR – NOV 2016 – L2 – Q7b – Revenue from Contracts with Customers (IFRS 15)
Question tests understanding of IAS 11's methods for determining stage of completion in construction contracts.
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Question Tag: Contract Accounting
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- 12 Marks
FR – NOV 2016 – L2 – Q7a – Revenue from Contracts with Customers (IFRS 15)
Question tests understanding of how to account for long-term construction contracts, focusing on stage of completion and profit recognition.
Question
Alpha Plc started a 4-year contract to build a dam. Activities commenced on February 1, 2015. The total contract price amounted to N30billion, and it was estimated that work would be completed at a total cost of N23.75billion. In the construction agreement, the customer agreed to accept increase in wages tariffs in addition to the contract price.
The following information relates to contract activities for the financial year ended December 31, 2015.
(1) Cost for the year:
| N’million | |
|---|---|
| Material | 3,500 |
| Labour | 2,000 |
| Operating Overheads | 375 |
| Subcontractors | 450 |
(2) Current estimate of total contract costs indicates the following:
i. Material will be N450million higher than expected.
ii. Total labour cost will be N750million higher than expected. Of this amount only N600million will be the result of increase in wage tariffs. The remainder will be caused by inefficiencies.
iii. A savings of N75million is expected on operating overheads.
(3) During the year ended December 31 2015 the customer requested a variation to the original contract and it was agreed that the contract price would be increased by N2.250billion. The total estimated cost of this extra work is N1.875billion.
(4) By the end of year 2015, certificate issued by the quantity surveyors indicated a 25% stage of completion.
Required:
Calculate the profit to date based on:
i. Option A – Contract cost in proportion to estimated contract costs. (6 Marks)
ii. Option B – Percentage of work certified. (6 Marks)
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- Tags: Contract Accounting, Contract Revenue, Profit Recognition, Stage of Completion
- Level: Level 2
- Topic: Revenue from Contracts with Customers (IFRS 15)
- Series: NOV 2016
- 15 Marks
FR – Nov 2018 – L2 – SC – Q5 – Revenue from Contracts with Customers (IFRS 15)
Prepare the statement of profit or loss and financial position extracts based on the percentage of completion for a building contract over two years.
Question
Akawo Limited is a building contracting firm based in Abuja. ABC Limited awarded a contract to Akawo Limited to construct a residential building in Lagos. The agreed contract price is N80 million, and the completion date is December 31, 2017.
The following are details of transactions on the contract up to March 31, 2016:
- Contract commenced on July 1, 2015
- Contract costs incurred by March 31, 2016, include:
- Architects and surveyor’s fees: N1,000,000
- Materials: N6,200,000
- Direct labor costs: N7,000,000
- Overheads (40% of direct labor costs): N2,800,000
- Estimated cost to completion (excluding depreciation): N29,600,000
- Plant and machinery used exclusively on the contract: N7,200,000 (Depreciation based on period of use)
- Material on-site as at March 31, 2016: N600,000
The value of the plant at the end of the contract would be N1.2m and the basis of depreciation
is period of usage. Material on site as at March 31, 2016 is N600,000.
Progress payment made by ABC Limited to Akawo Limited amounted to N25.6m as at March
31, 2016.
The following information is also relevant to the contract as at March, 31 2017:
Cost incurred since the commencement of the contract to date-N40.8m.
Estimated cost to completion (excluding depreciation) N13.2m
ABC Limited paid additional N32.4m to Akawo Limited on March, 31 2017 Akawo Limited
uses percentage of completion to determine profit on a contract.
Required:
Prepare in relation to the building contract, the statement of profit or loss extracts for the years ended March 31, 2016, and 2017, and the statement of financial position extracts as at the year ended on those dates.
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- 1 Marks
MI – May 2021 – L1 – SA – Q5 – Costing Methods
Define notional profit in contract costing.
Question
Notional profit is:
A. Profit made by all companies in a nation
B. Profit estimated on an on-going contract at the end of a financial year
C. Profit earned from all branches of a business nationwide
D. Estimated profit on a job about to be commenced
E. Profit earned on a contract just concluded
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- Tags: Contract Accounting, Job Costing, Notional Profit
- Level: Level 1
- Topic: Costing Methods
- Series: MAY 2021
- 3 Marks
FR – NOV 2016 – L2 – Q7b – Revenue from Contracts with Customers (IFRS 15)
Question tests understanding of IAS 11's methods for determining stage of completion in construction contracts.
Find Related Questions by Tags, levels, etc.
- 12 Marks
FR – NOV 2016 – L2 – Q7a – Revenue from Contracts with Customers (IFRS 15)
Question tests understanding of how to account for long-term construction contracts, focusing on stage of completion and profit recognition.
Question
Alpha Plc started a 4-year contract to build a dam. Activities commenced on February 1, 2015. The total contract price amounted to N30billion, and it was estimated that work would be completed at a total cost of N23.75billion. In the construction agreement, the customer agreed to accept increase in wages tariffs in addition to the contract price.
The following information relates to contract activities for the financial year ended December 31, 2015.
(1) Cost for the year:
| N’million | |
|---|---|
| Material | 3,500 |
| Labour | 2,000 |
| Operating Overheads | 375 |
| Subcontractors | 450 |
(2) Current estimate of total contract costs indicates the following:
i. Material will be N450million higher than expected.
ii. Total labour cost will be N750million higher than expected. Of this amount only N600million will be the result of increase in wage tariffs. The remainder will be caused by inefficiencies.
iii. A savings of N75million is expected on operating overheads.
(3) During the year ended December 31 2015 the customer requested a variation to the original contract and it was agreed that the contract price would be increased by N2.250billion. The total estimated cost of this extra work is N1.875billion.
(4) By the end of year 2015, certificate issued by the quantity surveyors indicated a 25% stage of completion.
Required:
Calculate the profit to date based on:
i. Option A – Contract cost in proportion to estimated contract costs. (6 Marks)
ii. Option B – Percentage of work certified. (6 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Contract Accounting, Contract Revenue, Profit Recognition, Stage of Completion
- Level: Level 2
- Topic: Revenue from Contracts with Customers (IFRS 15)
- Series: NOV 2016
- 15 Marks
FR – Nov 2018 – L2 – SC – Q5 – Revenue from Contracts with Customers (IFRS 15)
Prepare the statement of profit or loss and financial position extracts based on the percentage of completion for a building contract over two years.
Question
Akawo Limited is a building contracting firm based in Abuja. ABC Limited awarded a contract to Akawo Limited to construct a residential building in Lagos. The agreed contract price is N80 million, and the completion date is December 31, 2017.
The following are details of transactions on the contract up to March 31, 2016:
- Contract commenced on July 1, 2015
- Contract costs incurred by March 31, 2016, include:
- Architects and surveyor’s fees: N1,000,000
- Materials: N6,200,000
- Direct labor costs: N7,000,000
- Overheads (40% of direct labor costs): N2,800,000
- Estimated cost to completion (excluding depreciation): N29,600,000
- Plant and machinery used exclusively on the contract: N7,200,000 (Depreciation based on period of use)
- Material on-site as at March 31, 2016: N600,000
The value of the plant at the end of the contract would be N1.2m and the basis of depreciation
is period of usage. Material on site as at March 31, 2016 is N600,000.
Progress payment made by ABC Limited to Akawo Limited amounted to N25.6m as at March
31, 2016.
The following information is also relevant to the contract as at March, 31 2017:
Cost incurred since the commencement of the contract to date-N40.8m.
Estimated cost to completion (excluding depreciation) N13.2m
ABC Limited paid additional N32.4m to Akawo Limited on March, 31 2017 Akawo Limited
uses percentage of completion to determine profit on a contract.
Required:
Prepare in relation to the building contract, the statement of profit or loss extracts for the years ended March 31, 2016, and 2017, and the statement of financial position extracts as at the year ended on those dates.
Find Related Questions by Tags, levels, etc.
- 1 Marks
MI – May 2021 – L1 – SA – Q5 – Costing Methods
Define notional profit in contract costing.
Question
Notional profit is:
A. Profit made by all companies in a nation
B. Profit estimated on an on-going contract at the end of a financial year
C. Profit earned from all branches of a business nationwide
D. Estimated profit on a job about to be commenced
E. Profit earned on a contract just concluded
Find Related Questions by Tags, levels, etc.
- Tags: Contract Accounting, Job Costing, Notional Profit
- Level: Level 1
- Topic: Costing Methods
- Series: MAY 2021
