TOPIC 2: MFRS 111 Construction Contracts

Question 1
(A)Teguh Bhd
Workings
Cost to date
Architects etc fees
Material (less unused)
Labour
Overhead
Depreciation
Cost to complete
Depreciation
Total estimated cost
% completed

2008
RM000

(273-30)
270X2/3
(96-6)X9/30

1413+30
(96-6) X (9+12)/30

30,000
243,000
270,000
180,000
27,000
750,000
1,443,000
63,000
2,256,000
33.24%

2009
RM000
1,377,000

(96-6) X
(9+12)/30

(96-6)X9/30

63,000
1,440,000
813,000
27,000
2,280,000
63.15%

For Income Statement

Revenue to date

33.24% X2,550m

2008
RM000
847,620

63.15% X(2,550
+120)

2009
RM000
1,686,105

Revenue recognised
Revenue for year

Nil
847,620

(847,620)
838,485

Cost to date
Recognised previous years

750,000
Nil
750,000
97,620

1,440,000
(750,000)
690,000
148,485

Profit/(loss)

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
Cost to date
Cost to be incurred
Estimated Total cost
Stage of completion

2011
RM000
1,800
1,200
3,000
1,800 x100
3,000
= 60%

RM000
Contract price
Variation
Total revenue
Stage of completion
Revenue to date
Revenue recognised
previously
(RM3m x 30%)
Revenue in current year
Less:
Cost to date
Cost recognised previously
Cost for current year
Claims not recoverable
PROFIT FOR THE YEAR

2012
RM000
3,100
Nil
3,100
3,100 x100
3,100
= 100%
2011
RM000
3,000
400
3,400
60%
2,040

RM000

900
1,140
1,800
(810)

2012
RM000
3,000
400
3,400
100%
3,400
2,040
1,360

3,100
(1,800)
990
150

1,300
50
10

c.

Amount due to/ from customer for 2011

Cost to date
Add: profit to date (150 + (900 810)
Less: Progress billing to date
Amounts due from customers

RM000
1,800
240
2,040
1,900
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.
RM000
Initial revenue
50,000
Claim
2,000
Total Revenue
52,000
Cost to date:
Direct Material
Direct Labour
Overhead (1/4 x 4,000)
Depreciation ( 20M - 3.8M) x (33/36)
Claims
Head office
Less: Material on-site for future work
Cost to date
Add: Cost to complete (excluding depreciation)
Depreciation ( 20M - 3.8M) x (3/36)
Estimated total contract cost
Estimated total profit

9,000
4,000
1,000
14,850
2,000
Nil
30,850
(1,000)
29,850
18,550
1,350
49,750
2,250

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

49,750
Revenue to date [60% x 52 M]
Cost to date (60% x 49,750)

RM000
31,200
29, 850

Profit to date

1,350

c) Amount due from / (to) customer

RM000
29, 850
1,350
31,200
31,000
200

Cost to date
Add: Profit to date
Less: Progress billings to date
Amounts due from customer

Extract Statement of Financial Position as at 31 March 2012

Current Asset
RM000
Materials on site
1,000
Accounts receivable (31M 29M)
2,000
Amounts due from customer
200

Question 4
(a).

Contract price
Cost until 30 September 2010
Cost for the current year (see below)
Cost to date
Estimated further costs to complete the
contract
Total estimated contract costs
Total estimated profit

LA101
RM000
18,000

FG119
RM000
30,000

9,918
3,762
13,360
2,880

1,080
1080
21,000

16,560
1,440

22,080
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%
16,560
= 82.61%

1,080 x 100%
22,080
= 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
Wages
Salaries and related charges
Payment to sub-contractor
Plant hire
Contract overhead
Depreciation plant
Materials unused at the end of the year
Cost for the current year

Revenue recognised to date

Revenue recognised in the previous
year
Recognised in the current year
Cost recognised to date
Cost recognised in the previous year
Cost recognised in the current year

(894 + 162) = 1,056

1,290
456
330
90
420
450
4,092
(330)
3,762

630
375
105
78
1,188
(108)
1,080

(82.61% x 18,000)
14,870
(10,780)

1,080

4,090

1,080

13,680
(9,918)
3,762

1,080
1,080

(b).

Cost to date
Profit recognised to date

Progress billings to date

Amount due from customer

LA101
RM000
Alternative
13,680 (9,918+4,092)
14,010
(14,870 13,680)
1,190
1,190
14,870
15,200
( 8,400 + 3,360)
(11,760)
11,760
3,110
3,440

FG119
RM000
1,080
1.080
1,080