Question

Monkey Business, an import business, builds special-order yachts. They decide to build one for a customer for at a cost $2,500,000. It will take 2 years (they start building in June 1, 2007) to build with total costs of $1,900,000: costs of $320,000 in 2007; $1,200,000 in 2008; and the remainder in 2009 (assume they stick to budget). The customer puts a deposit down of $500,000 and pays the remainder in 4 installments, each due every 6 months. For each year (2007, 2008, and 2009) compute the revenue expense, and gross profits reported for this construction project. Assume they do not have a written contract but based on this customer having purchased several yachts in the past, they believe he will pay for the boat in a timely manner. Show all your work.

SAS Computers owns a patent on a computer processor. The processor was developed and capitalized at a cost of €2,100,000 in the beginning of 2015. It was expected to be economically useful for 7 years and have no residual value. At the beginning of 2018, a new processor was developed, making the old processor worth €900,000 (independent appraiser) with €200,000 total cost to sell. The present value of the processor’s future cash flows, given the development of the newer processor, is estimated to be €870,000. At this point, it is expected to have a useful life of 4 years with no residual value. Is the processor impaired in 2018? If it is impaired, prepare the to record the loss. Also prepare the journal entry for amortization in 2018. Show your work.

Answer 1

1..Year	Costs incurred	Cumulative (upto the year)costs incurred	% of work completed=Costs incurred till date/Total cost of the contract	Corresponding cumulative revenue to be recognised=% of work completed*Total contract price	Revenue that need to be recognised in the year	Gross profit for the period	Cumulative gross profit
1	2	3	4=3/1900000	5=4*2500000	6	7=6-2	8
June 1,2007 to Dec31, 2007	320000	320000	16.84%	421053	421053	101053	101053
2008	1200000	1520000	80.00%	2000000	1578947	378947	480000
Upto jun 2009	380000	1900000	100.00%	2500000	500000	120000	600000
	1900000				2500000
	Answer: From the above table
		Revenue	Expenses	Gross profit
	2007	421053	320000	101053
	2008	1578947	1200000	378947
	2009	500000	380000	120000
		2500000	1900000	600000
Total price	2500000
Total costs estimated	1900000
Total Gross profit on the whole contract	600000

2..New Processor ( Exchange value)(900000+870000)	1770000
Accumulated depreciation(Old processor)-St.line(2100000/7*3)	900000
Selling costs (old processor)	200000
Old processor		2100000
Cash		200000
Gain on exchange		570000
As the old processor can be exchanged GAINFULLY at beginning of Yr. 3 as shown above, it is not impaired.