TOPIC 2: MFRS 111 Construction Contracts

Question 1

(A)Teguh Bhd

Workings 2008 2009

RM’000 RM’000
Cost to date 1,377,000
Architects etc fees 30,000
Material (less unused) (273-30) 243,000
Labour 270,000
Overhead 270X2/3 180,000
Depreciation (96-6)X9/30 27,000 (96-6) X 63,000
(9+12)/30
750,000 1,440,000
Cost to complete 1413+30 1,443,000 813,000
Depreciation (96-6) X (9+12)/30 63,000 (96-6)X9/30 27,000
Total estimated cost 2,256,000 2,280,000
% completed 33.24% 63.15%

For Income Statement

2008 2009
RM’000 RM’000
Revenue to date 33.24% X2,550m 847,620 63.15% X(2,550 1,686,105
+120)
Revenue recognised Nil (847,620)
Revenue for year 847,620 838,485

Cost to date 750,000 1,440,000

Recognised previous years Nil (750,000)
750,000 690,000
Profit/(loss) 97,620 148,485
Question 2
a. The variation of RM400,000 can be recognised as revenue since the customer
requested the changes and has agreed to accept the charges. The claims of
RM50,000 cannot be recognised as revenue because the customer is unlikely to
accept the claims.

b. Profit for the year:

Year 2011 2012

RM’000 RM’000
Cost to date 1,800 3,100
Cost to be incurred 1,200 Nil
Estimated Total cost 3,000 3,100

Stage of completion 1,800 x100 3,100 x100

3,000 3,100
= 60% = 100%

2011 2012
RM’000 RM’000 RM’000 RM’000
Contract price 3,000 3,000
Variation 400 400
Total revenue 3,400 3,400
Stage of completion 60% 100%
Revenue to date 2,040 3,400
Revenue recognised 2,040
previously
(RM3m x 30%) 900
Revenue in current year 1,140 1,360
Less:
Cost to date 1,800 3,100
Cost recognised previously (810) (1,800)
Cost for current year 990 1,300
Claims not recoverable 50
PROFIT FOR THE YEAR 150 10
 c. Amount due to/ from customer for 2011

RM’000
Cost to date 1,800
Add: profit to date (150 + (900 – 810) 240
2,040
Less: Progress billing to date 1,900
Amounts due from customers 140

Question 3
a) FRS 111 construction contracts allows variations, claims and incentive payments to be
included in contract revenue to the extent that it is probable that they will result in revenue
and that and they are capable of being reliably measured. Since the RM2 million has been
incurred and the customer has agreed to pay the claim, it meets the criteria set out in the
Standard. Therefore it should be included in the revenue and contract cost for the period.

b) Contract revenue, costs and profits for year ended 31 March 2012.
RM’000
Initial revenue 50,000
Claim 2,000
Total Revenue 52,000

Cost to date:
Direct Material 9,000
Direct Labour 4,000
Overhead (1/4 x 4,000) 1,000
Depreciation ( 20M - 3.8M) x (33/36) 14,850
Claims 2,000
Head office Nil
30,850
Less: Material on-site for future work (1,000)
Cost to date 29,850
Add: Cost to complete (excluding depreciation) 18,550
Depreciation ( 20M - 3.8M) x (3/36) 1,350
Estimated total contract cost 49,750
Estimated total profit 2,250

Stage of completion = 29,850 x 100 = 60%

49,750

RM’000
Revenue to date [60% x 52 M] 31,200
Cost to date (60% x 49,750) 29, 850
Profit to date 1,350

c) Amount due from / (to) customer

RM’000
Cost to date 29, 850
Add: Profit to date 1,350
31,200
Less: Progress billings to date 31,000
Amounts due from customer 200

Extract Statement of Financial Position as at 31 March 2012

Current Asset RM’000
Materials on site 1,000
Accounts receivable (31M – 29M) 2,000
Amounts due from customer 200

Question 4

(a).
LA101 FG119
RM’000 RM’000
Contract price 18,000 30,000

Cost until 30 September 2010 9,918 -

Cost for the current year (see below) 3,762 1,080
Cost to date 13,360 1080
Estimated further costs to complete the 2,880 21,000
contract
Total estimated contract costs 16,560 22,080
Total estimated profit 1,440 7,920

No provision for future loss is required as all the contracts above are expected to make
profit/

Stage of completion 13,680 x 100% 1,080 x 100%

16,560 22,080
= 82.61% = 4.89%*

* The outcome of the contract for Contract FG119 cannot be estimated reliably because
the stage of completion does not reach 10%. MFRS 111 requires the revenue to be
recognised for this contract is limited to the amount of contract cost incurred that is
probable will be recoverable.
Cost for the year:
Materials (894 + 162) = 1,056 630
Wages 1,290 375
Salaries and related charges 456 105
Payment to sub-contractor 330 -
Plant hire 90 -
Contract overhead 420 78
Depreciation – plant 450 -
4,092 1,188
Materials unused at the end of the year (330) (108)
Cost for the current year 3,762 1,080

Revenue recognised to date (82.61% x 18,000) 1,080

14,870
Revenue recognised in the previous (10,780) -
year
Recognised in the current year 4,090 1,080

Cost recognised to date 13,680 1,080

Cost recognised in the previous year (9,918) -
Cost recognised in the current year 3,762 1,080

(b).
LA101 FG119
RM’000 Alternative RM’000
Cost to date 13,680 (9,918+4,092) 1,080
14,010
Profit recognised to date (14,870 – 13,680) -
1,190 1,190
14,870 15,200 1.080
Progress billings to date ( 8,400 + 3,360) -
(11,760) 11,760
Amount due from customer 3,110 3,440 1,080