Alfa Ltd. enters into a 3 years contract, the costs and profit/loss details of which are: Contract
Question:
Alfa Ltd. enters into a 3 years contract, the costs and profit/loss details of which are:
Contract price $30 m
Estimated costs $21 m (when the contract was signed)
Estimated profit: $9 m
Details of the actual costs and estimated costs to complete the contract are:
Year ended 31 March
Year 1($000)
Year 2($000)
Year 3 ($000)
Construction costs in the year
2 940
16 635
12 000
Costs to date
2 940
19 575
31 575
Estimated costs to complete
18 060
12 000
Estimated total costs (costs to date + costs to complete)
21 000
31 575
31 575
Notes:
- At the end of year 1 the project is still profitable and profit can be recognized.
- At the end of year 2 the project’s total costs exceed the contract price. There will be an overall loss on the contract which must be recognized in year 2.
Required:
Prepare the general ledger for ‘construction in process/progress (CIP)’ account.
Financial reporting, financial statement analysis and valuation a strategic perspective
ISBN: 978-0324789416
7th Edition
Authors: James M Wahlen, Stephen P Baginskl, Mark T Bradshaw