Reference no: EM132951475
Amars Ltd is a construction company that prepares its financial statements to 31 March each year. During the year ended 31 March 2020 the company commenced three construction contracts that are expected to take more than one year to complete. The position of each contract at 31 March 2020 is as follows:
CONTRACTS A B C
$000 $000 $000
Agreed Contract Price 5,500 1,200 3,600
Cost incurred to date (at 31 March 2020) 1,900 720 2,700
Cost to completion 2,800 180 1,200
Agreed value of work completed at 31/3/2020 1,100 840 1,440
Progress billings invoiced at 31 March 2020 0 880 1,200
Cash received 0 600 960
The agreed value of the work completed at 31 March 2020 is considered to be equal to the revenue earned in the year ended 31 March 2020. The percentage of completion is calculated as the agreed value of work completed to the agreed contract price.
The company considers that the outcome of a contract cannot be estimated reliably until a contract is 40% complete. It is, however, probable that the customer will pay for costs incurred so far.
REQUIRED:
a) Calculate the amounts which should appear in the income statement and statement of financial position of Amar Limited at 31 March 2020 in respect of the above contracts.
b) Explain what is rectification cost and how it should be accounted for in contract accounts
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