S plc is a shipbuilder which is currently working on two contracts:
|
Deep sea |
Small passenger |
|
|
fishing boat |
ferry |
|
|
£000 |
£000 |
|
|
Contract price (fixed) |
3000 |
5000 |
|
Date work commenced |
1 October 2000 |
1 October 2001 |
|
Proportion of work completed during year ended |
30% |
Nil |
|
30 September 2001 |
||
|
£000 |
£000 |
|
|
Invoiced to customer during year ended |
900 |
Nil |
|
30 September 2001 |
||
|
Cash received from customer during year ended |
800 |
Nil |
|
30 September 2001 |
||
|
Costs incurred during year ended 30 September 2001 |
650 |
Nil |
|
Estimated cost to complete at 30 September 2001 |
1300 |
|
|
Proportion of work completed during year ended |
25% |
30% |
|
30 September 2002 |
||
|
£000 |
£000 |
|
|
Invoiced to customer during year ended |
750 |
2250 |
|
30 September 2002 |
||
|
Cash received from customer during year ended |
700 |
2250 |
|
30 September 2002 |
||
|
Costs incurred during year ended 30 September 2002 |
580 |
1900 |
|
Estimated cost to complete at 30 September 2002 |
790 |
3400 |
S plc recognises turnover and profit on long term contracts in relation to the proportion of work completed.
Required
(a) Calculate the figures that will appear in S plc’s profit and loss account for the year ended 30 September 2002 and its balance sheet at that date in respect of each of these contracts.
The Accounting Standards Board’s Statement of Principles for Financial Reporting (SoP) effectively defines losses on individual transactions in such a way that they are associated with increases in liabilities or decreases in assets. Liabilities are defined as ‘obligations of an entity to transfer economic benefits as a result of past transactions or events’.
Required
(b) Explain how the definition of losses contained in the SoP could be used to justify the requirement of SSAP 9 – Stocks and Long term Contracts to recognise losses in full on long term contracts as soon as they can be foreseen.