Companies may directly expense incremental costs for contracts where the amortization period would be less than one month. less than one year. less than 20 months and contained within 2 fiscal years. more than one year.
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Companies may directly expense incremental costs for contracts where the amortization period would be
- less than one month.
- less than one year.
- less than 20 months and contained within 2 fiscal years.
- more than one year.
Introduction:
Direct costs:
Costs which are directly related to the product called direct cost.
Step by step
Solved in 2 steps
- A contracting firm anticipates that it will incur costs in excess of the contract price on a particular contract. The firm has completed two years of work but the contract is only 60% complete. What portion of the entire anticipated loss is recognized as of the end of the second year? Which section of the authoritative literature best describes this situation and provides the appropriate guidance?We have given the contract to an agency for the value of 17 Cr for the duration of 7 month with the LD clause of 0.5% of total contract price for each week's delay or part thereof, subject to maximum of 5% of total contract price. But agency has completed only 9 Cr in 10 month duration and closed the work, in this case how will calculate the LD amount?If at the end of the second year of a 4-year contract, a company determines total estimated costs are going to exceed the contract price, it immediately recognizes the total estimated loss. it recognizes the total estimated loss in the year of completion if it is using the point-in-time method. it spreads the estimated loss over the remaining two years if it is using the recognizing-revenue-over-time method. it treats the estimated loss as a change in accounting estimate.
- Question: A firm enters into a 15-year contract for materials that cost $100,000 initially and $25,000/yr starting at the end of year (5). The company decides to make a lump sum payment at the end of year 3 to pay off the remainder of the contract. What lump sum is necessary at 10% interest?Rice Corp. recognizes revenue over time to account for long-term contracts and has the following information for the first year of the contract: Contract price Total expected costs on contract Costs incurred in current year Costs incurred in previous years $500,000 A.) $100,000 B.) $500,000 C.) $60,000 D.) $75,000 400,000 60,000 What is the amount of revenue recognized in year 1?The Naples Company uses the percentage-of-completion method and the cost-to-cost method for its long-te construction contracts. On one such contract, Naples expects total revenues of 260,000 and total costs of 200,000. During the first year, Naples incurred costs of 50,000 and billed the customer 30,000 under the contract. At what net amount should Naple's Construction in Progress for this contract be reported at the end of the first year?
- The Naples Company uses the percentage-of-completion method and the cost-to-cost method for its long-term construction contracts. On one such contract, Naples expects total revenues of P260,000. During the first year, Naples incurred costs pf P50,000 and billed the customer P30,000 under the contract. At what net amount should Naples Construction in Progress for this contract be reported at the end of the first year? a. P 35,000 b. 65,000Assume that 2 years after the initial agreement, the market for product has softened considerably, causing excess capacity for the D Division. Would you expect a renegotiation of the full cost-plus pricing arrangement for the coming year? Explain.A firm enters into an 8-year contract for materials that cost $90,000 initially and $30,000/yr beginning at the end of the 4th year. The company decides to make a lump sum payment at the end of year 2 to pay off the remainder of the contract. What lump sum is necessary at 8% interest?
- Nvidia enters into a contract which pays $2,100/month for six months of services. In addition, there is a 70% chance the contract will pay an additional $3,500 and a 30% chance the contract will pay an additional $1,500, depending on the outcome of the contract. Assume Nvidia estimates variable consideration as the most likely amount. What is the amount of revenue Nvidia would recognize for the first month of the contract? Note: Do not round intermediate calculations. Round final answer to whole dollars. Multiple Choice $2,100 $2,450 ☐ $2,683Widjaja Company is accounting for a long-term construction contract using the percentage-of-completion method. It is a 4-year contract that is currently in its second year. The latest estimates of total contract costs indicate that the contract will be completed at a profit to Widjaja Company. Instructions a. What theoretical justification is there for Widjaja Company's use of the percentage-of-completion method? b. How would progress billings be accounted for? Include in your discussion the classification of progress billings in Widjaja Company financial statements. c. How would the income recognized in the second year of the 4-year contract be determined using the cost-to-cost method of determining percentage of completion? d. What would be the effect on earnings per share in the second year of the 4-year contract of using the percentage-of-completion method instead of the completed-contract method? Discuss.Eagle Limited has a three-year contract; at the 31 December 2020 the outcome of the contract cannot be reliably estimated. The cost incurred to date is $12m, expected cost to completion is $168m and the contract price is $240m. The project is 16% complete. At this stage only 80% of the cost to date is deemed recoverable. REQUIRED: Prepare the Statement of Expected Profit or Loss and the Statement of Comprehensive Income for the financial year ended 31 December 2019. Explain to the directors of the company in the form of a memo, how the above contract will be treated according to IFRS 15.