On 1 October 20X2 Pricewell entered into a contract to construct a bridge over a river. The total contract revenue was $50 million and construction is expected to be completed on 30 September 20X4. Costs to date are: $m Materials, labour and overheads 12 Specialist plant acquired 1 October 20X2 8 The sales value of the work done at 31 March 20X3 has been agreed at $22 million and the estimated cost to complete (excluding plant depreciation) is $10 million. The specialist plant will have no residual value at the end of the contract and should be depreciated on a monthly basis. Pricewell recognises satisfaction of performance obligations on the percentage of completion basis as determined by the agreed work to date compared to the total contract price. What is the profit to date on the contract at 31 March 20X3? A $8,800,000 B $13,200,000 C $11,440,000 D $10,000,000
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On 1 October 20X2 Pricewell entered into a contract to construct a bridge over a river. The total
contract revenue was $50 million and construction is expected to be completed on 30 September 20X4.
Costs to date are:
$m
Materials, labour and
Specialist plant acquired 1 October 20X2 8
The sales value of the work done at 31 March 20X3 has been agreed at $22 million and the estimated cost to
complete (excluding plant depreciation) is $10 million. The specialist plant will have no residual value at the
end of the contract and should be
performance obligations on the percentage of completion basis as determined by the agreed work to date
compared to the total contract price.
What is the profit to date on the contract at 31 March 20X3?
A $8,800,000
B $13,200,000
C $11,440,000
D $10,000,000
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