1. During 2020 Silk plc entered into a contract to build a new building, containing lecture theatres and tutorial rooms, plus two additional student accommodation blocks, at the University of Oxford Brookes. The agreed total price of the buildings is £30,000,000 and construction was expected to be completed by 30 June 2021.”

“Silk plc’s accounting records as at 31 December 2020 show the following balances relating to this contract:”

	“£000”
“CONTRACT WORK IN PROGRESS
Materials & labour	12,000
Overheads allocated to the contract	2,000
Specialist plant acquired for the contract	5,000
Payment received on account	(2,850)”

    

“Silk plc undertakes a variety of construction contracts, incurring central contracting overheads that it allocates to each individual contract on a consistent and appropriate basis.

The specialist plant will have a residual value of £2,000,000 at the end of the contract. It has a net book value of £3,500,000 as at 31 December 2020.

The construction contract specifies that control passes to the University of Oxford Brookes as each building is certified as being completed by the University’s architect. As at 31 December 2020, one building had been completed, which had an agreed selling price of £12,000,000. This was invoiced prior to the year-end.

The estimated costs to complete the contract (materials, labour and allocated construction overheads) are £8,000,000.

Silk plc recognizes revenues and profits on uncompleted contracts on the percentage of completion basis (Agreed value of work complete as a percentage of the contract price).”

REQUIRED: 

Show the entries to be shown in the company’s Income Statement for the year ended 31 December 2020, together with the Balance Sheet as at that date.

Answer rating: 100% (QA)

Solution Price 30000000 30000000 30000000 2020 2021 2021 CONTRACT WORK ... View the full answer