FINANCIAL ACCOUNTING REPORTING 2 (BAC2634)

TUTORIAL ON MFRS 111: CONSTRUCTION CONTRACTS

QUESTION 1
At the end of year x12:
a) the plant was valued at RM62,000 (carrying value).
b) Unused materials on site were valued at RM80,000.
d) The progress billing was RM388,800.
Required:
QUESTION 1 (ANSWER)
a)
Total contract price = RM900,000
RM RM
Materials, wages and subcontractors 420,000
Less: Unused materials (80,000)
Depreciation (RM78,000-RM62,000) 16,000
Cost to date 356,000
Materials, wages and subcontractors 420,000
Depreciation (RM78,000-RM62,000) 16,000
Further cost to complete 290,000
Estimated total cost 726,000
Percentage 356,000/726,000 49%
Statement of Comprehensive income for the year x12
RM
Revenue (49% x RM900,000) 441,000
Contract 12456 commenced during year x12 and has a fixed contract price of
RM900,000. The costs incurred during the year x12 for materials, wages and sub-
contractors charges totaled RM420,000. Plant costing RM78,000 was purchased during
year x12 specifically for contract 12456.
c) It is estimated that further costs totalling RM290,000 would be incurred in order to
complete the contract. The figure includes the appropriate cost of plant and sub-
contractors in the future.
a) Prepare the extract of SOCI and SOFP for year x12. The entity recognizes revenue
based on cost to date bears to total cost.
b) Prepare the extract of the SOCI and SOFP for year x12. The entity recognises revenue
on the basis of value of work certified. The progress billing represents 90% of work
invoiced.
Estimated total contract
price>Estimated total cost=stage of
completion
ASM/MFRS111/TRI113_14
FINANCIAL ACCOUNTING REPORTING 2 (BAC2634)
TUTORIAL ON MFRS 111: CONSTRUCTION CONTRACTS
Cost 356,000
Profit 85,000
Statement of Financial Position as at x12
RM
Non-current asset
Plant 62,000
Current asset
Material 80,000
Amount due from customers 52,200
Notes to the financial statement
RM
Cost to date 356,000
Profit recognised 85,000
441,000
Less: Progress billing (388,800)
Amount due from customers 52,200
b) RM
Total contract price 900,000
Total estimated cost 726,000
Total estimated profit 174,000
Progress billing (RM388,800/0.9) 432,000
Percentage (RM432,000/RM900,000) 48%
Profit to date (48% x RM174,000) 83,520
Revenue (48% x RM900,000) 432,000
Costs (48% x RM726000) 348,480
Statement of Comprehensive income for the year x12
RM
Revenue 432,000
Cost 348,480
Profit 83,520
Statement of Financial Position as at x12
RM
Non-current asset
Plant 62,000
Current asset
Material 80,000
ASM/MFRS111/TRI113_14
FINANCIAL ACCOUNTING REPORTING 2 (BAC2634)
TUTORIAL ON MFRS 111: CONSTRUCTION CONTRACTS
Amount due from customers 50,720
Notes to the financial statement
RM
Cost to date 356,000
Profit recognised 83,520
439,520
Less: Progress billing (388,800)
Amount due from customers 50,720
ASM/MFRS111/TRI113_14
FINANCIAL ACCOUNTING REPORTING 2 (BAC2634)
TUTORIAL ON MFRS 111: CONSTRUCTION CONTRACTS
QUESTION 3
Year x3
RM'000
Contract price 850,000
Variation to contract price (increase) -
Costs
Fees-architects and engineers 10,000
Material delivered to site 91,000
Direct labour costs 90,000
471,000
Material on site at year-end for future work 10,000
Cost to date (excluding depreciation)
Cost to complete (excluding depreciation)
Progress billings to date 250,000
Required:
Prepare the extracts of the SOCI and SOFP for the years x3 and x4.
QUESTION 3 (ANSWER)
Construction period= 1/4/x3 - 30/9/x5= 30 months
Depreciation per month= [RM32m-RM2m] x 1 month/30 months = RM1,000 (time basis)
Year x3
RM'000
Total contract price 850,000
Fees-architects and engineers 10,000
Material delivered to site 91,000
Less: Materials for future work (10,000)
Richard Enterprise specialises in the construction of houses. One of its contracts was to build a luxury
condominium for Lux Homes. The agreed price was RM850 million and construction was scheduled to
begin on 1 April x3 and be complated on 30 September x5. The details of the contract to 31 Decemebr
x3 and x4 are as follows:
Overhead (2/3 of direct labour cost, excluding
depreciation)
Estimated costs to complete (excluding depreciation)
A plant costing RM32 million was acquired for use in this project. At the end of the contract, it
was estimated that the plant will have a residual value of RM2 million. Depreciation is charged
on a time basis. Richard Enterprise accrues profit on the contract using the percentage of
completion method measured by cost to date to total estimated cost.
ASM/MFRS111/TRI113_14
FINANCIAL ACCOUNTING REPORTING 2 (BAC2634)
TUTORIAL ON MFRS 111: CONSTRUCTION CONTRACTS
Direct labour costs 90,000
Overhead (2/3 of RM90,000) 60,000
Depreciation (9 months x RM1,000) 9,000 A
COST TO DATE A 250,000 A
Cost to complete 471,000
Depreciation (21months x RM1,000) 21,000
Materials for future work 10,000
B 752,000
Percentage A/B 33%
Statement of Comprehensive income for the year
Year x3
RM'000
Revenue to date 33%xRM850m 280,500
Revenue recognised -
Revenue for the year 280,500
Cost to date A 250,000
Recognised previous years -
Cost for the year 250,000
Profit/(loss) 30,500
Statement of Financial Position as at
Year x3
RM'000
Current asset
Material 10,000
Amount due from customers 30,500
Current liabilities
Amount due to customers
Notes to the financial statements
Year x3
RM'000
Contract costs incurred to date 250,000
Recognised profit 30,500
280,500
Progress billing (250,000)
Amount due from/(to) customer 30,500
ASM/MFRS111/TRI113_14
FINANCIAL ACCOUNTING REPORTING 2 (BAC2634)
TUTORIAL ON MFRS 111: CONSTRUCTION CONTRACTS
Year x4
RM'000
850,000
40,000
459,000
271,000
600,000
Depreciation per month= [RM32m-RM2m] x 1 month/30 months = RM1,000 (time basis)
Year x4
RM'000
890,000
Richard Enterprise specialises in the construction of houses. One of its contracts was to build a luxury
condominium for Lux Homes. The agreed price was RM850 million and construction was scheduled to
begin on 1 April x3 and be complated on 30 September x5. The details of the contract to 31 Decemebr
x3 and x4 are as follows:
A plant costing RM32 million was acquired for use in this project. At the end of the contract, it
was estimated that the plant will have a residual value of RM2 million. Depreciation is charged
on a time basis. Richard Enterprise accrues profit on the contract using the percentage of
completion method measured by cost to date to total estimated cost.
Estimated total contract
price>Estimated total
cost=stage of completion
ASM/MFRS111/TRI113_14
FINANCIAL ACCOUNTING REPORTING 2 (BAC2634)
TUTORIAL ON MFRS 111: CONSTRUCTION CONTRACTS
21,000
459,000
271,000
9,000
-
760,000
63%
Year x4
RM'000
560,700 63%xRM890m
(280,500)
280,200
480,000
(250,000)
230,000
50,200 total to date=RM80,700,000
Year x4
RM'000
39,300
Year x4
RM'000
480,000
80,700
560,700
(600,000)
(39,300)
ASM/MFRS111/TRI113_14