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

Answer 1

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