Question 2 25 Marks The percentage of completion method (based on costs) is used

Question

Question 2 25 Marks

The percentage of completion method (based on costs) is used to calculate profit on contracts, but only once contracts are 30% or completed or more.

REQUIRED:

2.1 Discuss the difference between the Work Certified Method and the Percentage of C0mpletion method. (6)

2.2 Calculate the profit/loss that can be brought into account for the financial period under review for each of the contracts in the records of Ovitoto Concrete Investment Cc. (19 . the table to use is below

Ovitoto Concrete Investment Cc presented you with the following information for the contracts awarded in Sept 2017; Contract

Okahandja Road

Midgard Road

Contract Price

1 499 500

1 950 550

Work certified

1 249 500

1 550 550

Cost of work certified

1 199 500

1 400 550

Cost of uncertified work

999 500

1 210 550

Cash received

1 149 500

1 400 550

Total expected cost (including costs incurred)

1 299 500

1 850 550

Ovitoto Concrete Investment Cc presented you with the following information for the contracts awarded in Sept 2017; Contract

Okahandja Road

Midgard Road

Contract Price

1 499 500

1 950 550

Work certified

1 249 500

1 550 550

Cost of work certified

1 199 500

1 400 550

Cost of uncertified work

999 500

1 210 550

Cash received

1 149 500

1 400 550

Total expected cost (including costs incurred)

1 299 500

1 850 550

Explanation / Answer

2.1.. Both are different types of value based methods of to measure the stage of completion of construction contracts -to assign values upto that stage -so as to recognise revenues,costs & profits. As normally, the construction units measure the stage of completion of a contract, at the end of their reporting period using one of the following methods: Cost to Cost Basis(% of completion method) (Cost to date/(Cost to date + Future Cost)) *100 Physical Proportion or Work Certified Method: (Work Certified to date/ Total Contract Price)* 100 Survey Method: As per the assessment survey completed by qualified professionals 2.2   Work-certfied method: Total Contract Price 1499500 1950550 Value of Work certified to-date 1249500 1550550 % of completion as per work certified method-(Work certified/Total contract price) 83.33% 79.49% So, revenue to be recognised= Value of work certified 1249500 1550550 Less: Cost of work certified 1199500 1400550 So,profit to be recognised 50000 150000

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.