The financial statements of Banaghan Ltd are made up to 31 March in each year. Work on Contract 32 started
The financial statements of Banaghan Ltd are made up to 31 March in each year. Work on Contract 32 started on 1 July 2016 and completed on 31 January 2018. The total contract price was £1,200,000 but a penalty of £120,000 was suffered for failure to complete by 31 December 2017.
The following is a summary of receipts and payments relating to the contract:
The amount received from the customer in 2017 represented the contract price of all work certified in that financial year less 10% retention money.
When the financial statements to 31 March 2017 were prepared, it was estimated that the contract would be completed on 31 December 2017, and that the market value of the plant would be £4,800,000 on that date. It was estimated that further expenditure on the contract would be £515,200.
For the purposes of the financial statements, depreciation of plant is calculated, in the case of uncompleted contracts, by reference to the expected market value of the plant on the date when the contract is expected to be completed, and is allocated between accounting periods by the straight line method.
Credit is taken, in the financial statements, for such a part of the estimated total profit, on each uncompleted contract, as corresponds to the proportion between the contract price of the work certified and the total contract price.
Prepare a summary of the account for Contract 32, showing the amounts transferred to profit and loss at 31 March 2017 and 31 March 2018.
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