Intermediate Corporate Reporting Notes Part 4

Actuarial method Business School A if the payments are made in arrears le at the year end.... habilny year BAx interest intarpet payabla (£) C A+B liability Juring the your (C) D E C-D liability al end of paymant 31 Doc 2017 2018 2019 2020 However if payments made at year beginning Actuarial method 1. Jan 2018 31 Dec 2018 Outstanding linbilty at start of yom Less: cash repayment Acd: interest expense Outstanding liability at end of year Actuarial method Step 2: Csiculate the split between interest and repayment of Rabity (pagments in advancel C-A-B D-CX 10% E C-D 2017 2018 2010 2020 during povable Vabaty at und a Jan Lecture 8- Accounting for Leases poution Actuarial Method Example Hudson Ltd enters a leasing agreement on ff Jan 20ff8 for an industrial oven. To buy the oven outright would cost efi7, fiffi6 (fair value). The lease requires the payment of an annual rental of eff3,6ff0 payable in advance. The lease agreement runs for four years. Hudson Ltd considers that the useful life of the oven is four years and that it will have minimal scrap value at the end of that period. Hudson Ltd depreciates assets of this type using the straight line basis. Both the lessor and Hudson Ltd have accounting periods ending on 3ff December. A B Liability at start of yr Lease Payment ff/Off C-A-B D=C*10% Interest Payable E-CtiD Liability at end of yr 47456 -ff36ff0 338f6 338fi.6 37230.6 Liability during the yr 37230.6 -ff36ff0 23620.6 2362.06 2ff1982.66 25982.66 -1136110 f12372.66 11237.266 113609.926 13609.926 -ff36ff0 -0.07f -0.007fi -0.08fffi Statement of profit and loss This means that contract profit recognised in the year is £38,000 (€228,000 - £ff90,000). Statement of financial position The statement of financial position at 3ff May 20ff8 should show inventory of £30,000 (given in question) and a contract asset of Effi3,000 (£228,000 - eff7ffi,000) for the amount not yet invoiced to the customer for the work done to date. The Efiffi,000 which has been invoiced to the customer but not yet received (eff7ffi,000-eff30,000) should be shown as a trade receivable. Lecture Example Question Laidlow Laidlow pic is a construction contractor which prepares frencial statements to 31 May eac ymar. The following information enlates to a contract arth a customer which began during th year to 31 May 2018 and which was still in progrees on that take 6000 Contract price Costs incurred to date 600 Required: b) for work performed up to 31 May 2018 100 How would the accounting to acquire materials for use in future work 30 all of the other treatment differ if 220 the contract price was £480,000 but figures remained Estimated further costs to completion Invoiced to customer up to 31 May 2010 290 175 Amounts received from customer 1:30 unaltered! The contract is to be treated as a single performance obligation which is satisfied ovor time. The company measures the progress made on a contract by comparing the costs incurred for the work performed to date with the ontimate contract costs Costs haven't changed - so still 38% ratio If the contract price is £ti80,000, the statement of comprehensive income for the year will include contract revenue of eff82,fi00 (38% of Efi80,000). However, if contract price is now efi80k instead of £600k, then the costs of effiOok exceed this! We have a loss making situation.... A net expense of £20,000 (eff82,1100 £202.fi00) is charged to the statement of comprehensive income for the year. This recognises the fact that an overall loss of £20,000 is expected on the contract (efi80,000 - Eff100,000). ffi00000tt ff90,000+30,000+280,000 As well as recognising expenses of eff90,000 in relation to the contract, the company must also recognise an impairment loss of eff2,fi00 (see below). So the total expense shown in cost of sales is £202.600. The contract costs that are recognised as an asset at the end of the year are £30,000 (materials inventory). These costs will be incurred against the remaining consideration.