Thornfield Ltd is a building contractor . During its financial year to 30 June 1984, it commenced
Question:
Thornfield Ltd is a building contractor . During its financial year to 30 June 1984, it commenced three major contracts. Information relating to these contracts as at 30 June 1984 was as follows
The plant and machinery allocated to the contracts was installed on the dates the contracts commenced . The plant and machinery is expected to have a working life of four years in the case of contracts 1 and 3 and three years in the case of contract 2, and is to be depreciated on a straight line basis assuming nil residual values.
Since the last certificate of work was certified on contract number 1 , faulty work has been discovered which is expected to cost £10000 to rectify. No rectification work has been commenced prior to 30 June 1984.
In addition to expending directly attributable to contracts, recoverable central overheads are estimated to amount to 2% of the cost of direct wages.
Thornfield Ltd has an accounting policy of taking two thirds of the profit attributable to the value of work certified on a contract, once the contract is one third completed. Anticipated losses on contracts are provided in full.
Progress claims equal to 80% of the value of work certified have been invoiced to customers.
You are required to:
(a) prepare contract accounts for each contract for the year to 30 June 1984, calculating any attributable profit or loss on each contract; (12 marks)
(b) calculate the amount to be included in the balance sheet of Thornfield Ltd as on 30 June 1984 in respect of these contracts.
Step by Step Answer:
