Tuesday, 25 December 2012
CONSTRUCTION
CONTRACT
Based on the course by: Andre Altmeyer
Problem
Company France Constructions is
executing a gigantic project of constructing the tallest building in the
country.
The project is expected to take 3
years to complete. The company has fixed a fixed-price contract of 36 M € for
the construction of the prestigious tower.
The details of the costs incurred to
date in the 1st
year are listed below:
|
|
in €
|
|
Site labour costs
|
3 000 000
|
|
Cost of construction material
|
9 000 000
|
|
Depreciation of plant and equipment
used for contracting to build the tall building
|
1 500 000
|
|
Marketing and selling costs to get the
contract
|
3 000 000
|
|
TOTAL
|
16 500 000
|
Additional contract costs estimated
to complete the contract are 16.500.000 €.
Prepare
·
Calculate
the % of completion and the amounts of revenue, costs and profit to be
recognised in the Income Statement.
Plan
Be
attentive to the fact that under completion method the costs taken into account
to measure the % of completion exclude marketing and selling or administrative
costs.
Execute
Costs incurred to date
|
|
in €
|
|
Site
labour costs
|
3 000 000
|
|
Cost of construction material
|
9 000 000
|
|
Depreciation
of plant and equipment used for contracting to build the tall building
|
1 500 000
|
|
TOTAL
|
13 500 000
|
% of completion
13.500.000 divided by total costs
over 3 years 13.500.000 + 16.500.000 = 45%
Revenue, costs and profit of the
period
|
Revenue
|
36 000 000
|
45%
|
16 200 000
|
|
Total expected cost
|
-30 000 000
|
45%
|
-13 500 000
|
|
Profit
|
6 000 000
|
|
2
700 000
|
