Giulio Cesare Srl. is an Western European vehicle contractor. In 2004, Giulio Cesare Srl won a super-car contract worth $2,200 million. Giulio Cesare Srl uses the percentage-of-completion revenue recognition method. The following information was provided in the financial statements of Giulio Cesare Srl: 2004: Costs incurred during the year were $500 million. Estimated remaining costs to complete (as at year end 31st Dec) were $1,260 million. 2005: Costs incurred during the year were $850 million. Estimated remaining costs to complete (as at year end 31st Dec) were $450 million. 2006: Costs incurred during the year were $450 million. Estimated remaining costs to complete (as at year end 31st Dec) were $0 million. Based on the above information, calculate the contract’s portion of gross profits to be recognised in 2005. A) $125m B) $175m C) $212.5m D) $100m
B definitely. Milos
Yep…well done! Correct answer is B.
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Milos
Estimated Revenue: 2,200 Estimated Costs: 1,760 Estimated Profit: 440 2004: Costs incurred: 500/1760 = 28.4%; Profit recorded: 2,200*28.4% = 625-500=125 2005: Costs incurred (850+500)/1800 = 75%; Profit = 2,200*75%=1650-1,350-125=175 2006: Costs (450+850+500)/1800 = 100%; Profit = 2,200*100%=2,200-1,800-125-175=100 The tricky part is to figure out the increase in estimated costs in '05, from 1760 to 1,800.