Question
A Ltd commenced business on 1 January 20.6. The main activities of A Ltd is to erect relatively small shopping complexes on the North Island.
A Ltd commenced business on 1 January 20.6. The main activities of A Ltd is to erect relatively small shopping complexes on the North Island. During 20.6, construction of complexes in Hamilton and Cambridge started. In 20.7, construction of complexes in Tauranga and Auckland commenced.
At 31 December 20.7 the following information was available regarding the above-mentioned four construction contracts:
Hamilton | Cambridge | Tauranga | Auckland | |
Contract price | $225,000 | $250,000 | $300,000 | $200,000 |
Progress billings to date | $150,000 | $250,000 | $20,000 | $140,000 |
Cash received to date | $135,000 | $210,000 | $15,000 | $150,000 |
Profit already recognised in the period ending 31 Dec 20.6 | $8,000 | $20,000 | - | - |
Total estimated contract cost (including total costs already incurred) | $230,000 | $200,000 | $240,000 | $150,000 |
Cost to date (all recoverable) | $140,000 | $200,000 | $20,000 | $120,000 |
Contract revenue recognised until 31 Dec 20.6 | $110,000 | $120,000 | - | - |
Additional information:
A Ltd uses the percentage of completion method (based on cost) to determine the revenue that can be recognised on contracts. Profit is only recognised once a contract is 15% or more completed, as the directors are of the opinion that the outcome of a contract cannot be reliably estimated at an earlier stage.
REQUIRED:
- Determine the amount of contract revenue that may be recognised by A Ltd on every contract for the reporting period ended 31 December 20.7.
- Journalise the transactions for Tauranga and Auckland for the year ending 31 December 20.7
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