Reference no: EM132997034
Question - Stornoway Bridge - Lewis plc specialises in bridge construction and had two contracts in progress at its year end, 30 April 1999.
Construction on this contract started in May 1997. Contract details extracted from the company's costing records as at 30 April 1999 were:
£m
Total contract selling price 350
Work certified to date 210
Costs to date 175
Estimated costs to completion 75
Progress payments received 250
Work certified to date as at 30 April 1998 was £140 million and the appropriate amount of profit was recognised for the year ended 30 April 1998. No changes to the above total estimated contract costs have occurred since 30 April 1998.
On 11 May 1999 the customer's surveyor notified Lewis plc of a fault in one of the bridge supports constructed during a severe frost in February 1999. This will require remedial work in June 1999 at an estimated cost of £20 million.
Harris Link Bridge - Construction on this contract started in July 1998. Contract details extracted from the company's costing records as at 30 April 1999 were:
£m
Total contract selling price 400
Work certified to date 45
Costs to date 40
Estimated costs to completion 395
Progress payments received 25
The company calculates attributable profit on the basis of work certified for all contracts.
Requirements -
(a) Calculate the amounts to be included in the financial statements of Lewis plc for the year ended 30 April 1999, preparing all relevant extracts of the financial statements excluding accounting policies notes and any disclosures relating to cash flows.
(b) Explain how the requirements of SSAP 9, Stocks and long-term contracts, apply the prudence and accruals concepts to accounting for long-term contracts.