Profit Recognition – NBC Institute

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)

Answer

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

MI – May 2023 – L1 – SB – Q3 – Costing Methods

This question asks for the preparation of contract accounts for two contracts and shows profit taken at year-end.

Question

Joyle Construction Limited is currently working on two contracts with the following details as at December 31.

Details	Contract A (₦’000)	Contract B (₦’000)
Material	16,140	23,100
Wages	61,900	23,136
Expenses on site	8,270	10,344
Plant purchased	191,000	78,000
Accrued wages	5,060	2,690
Materials as at 31/12	2,670	7,680
Value of work certified	140,000	102,000
Cash received on certified work	119,000	76,500
Completed work not yet certified	4,450	2,640
Head office charges apportioned	15,660	12,230
Plant value as at 31/12	152,800	62,400

The contract value is ₦500,000,000 for Contract A and ₦350,000,000 for Contract B.

Required:
Prepare contract “A” and contract “B” accounts for Joyle Construction Limited as at December 31 in a columnar form. Show the profit taken at year-end and the balances carried forward. (Show workings where necessary).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contract Costing, Profit Recognition, Work in Progress
Level: Level 1

Topic: Costing Methods
Series: MAY 2023

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

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.

(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)

Answer

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

MI – May 2023 – L1 – SB – Q3 – Costing Methods

This question asks for the preparation of contract accounts for two contracts and shows profit taken at year-end.

Question

Joyle Construction Limited is currently working on two contracts with the following details as at December 31.

Details	Contract A (₦’000)	Contract B (₦’000)
Material	16,140	23,100
Wages	61,900	23,136
Expenses on site	8,270	10,344
Plant purchased	191,000	78,000
Accrued wages	5,060	2,690
Materials as at 31/12	2,670	7,680
Value of work certified	140,000	102,000
Cash received on certified work	119,000	76,500
Completed work not yet certified	4,450	2,640
Head office charges apportioned	15,660	12,230
Plant value as at 31/12	152,800	62,400

The contract value is ₦500,000,000 for Contract A and ₦350,000,000 for Contract B.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contract Costing, Profit Recognition, Work in Progress
Level: Level 1

Topic: Costing Methods
Series: MAY 2023

Question Tag: Profit Recognition

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

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.

MI – May 2023 – L1 – SB – Q3 – Costing Methods

This question asks for the preparation of contract accounts for two contracts and shows profit taken at year-end.

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.

MI – May 2023 – L1 – SB – Q3 – Costing Methods

This question asks for the preparation of contract accounts for two contracts and shows profit taken at year-end.

Our offerings

Contact Info

Customer

Get In Touch

Question Tag: Profit Recognition

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

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.

You're reporting an error for "FR – NOV 2016 – L2 – Q7a – Revenue from Contracts with Customers (IFRS 15)"

MI – May 2023 – L1 – SB – Q3 – Costing Methods

This question asks for the preparation of contract accounts for two contracts and shows profit taken at year-end.

You're reporting an error for "MI – May 2023 – L1 – SB – Q3 – Costing Methods"

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.

You're reporting an error for "FR – NOV 2016 – L2 – Q7a – Revenue from Contracts with Customers (IFRS 15)"

MI – May 2023 – L1 – SB – Q3 – Costing Methods

This question asks for the preparation of contract accounts for two contracts and shows profit taken at year-end.

You're reporting an error for "MI – May 2023 – L1 – SB – Q3 – Costing Methods"

Our offerings

Contact Info

Customer

Get In Touch

admin