06-03-2006, 08:23 AM
There are two methods of determining contract revenue and contract WIP
1)Cost to date method
2)Value of work certified method
in cost to date method u first determine stage of completion by dividing cost to date by total estimated contract cost and recognise revenue on its basis. it is usually common in cost plus contracts.
and in value of work certified method u book the revenue on the basis of work certified. It is usually common in fixed price contracts.
So the working out of contract WIP depends upon which contract u r dealing with i.e. fixed price or cost plus, or u can say which method u have adopted to determine contract revenues.
In the first treatment given by u, the profit recognised is worked out by applying a %age on the basis of cost to date. So it seems a cost plus cotract.
and in the second treatment, the profit is already included in the value of work certified plus the cost of work uncertified who's revenue will be recovered once that part of work is certified. and it seems to be a fixed price contract.
u may be able to apply both treatments on same question theoratically but practically its not the case.
Both treatments are correct, its just the type of contract u r dealing with.
and plz do not use in the subject words "lets c how much u know" in future. and if its like that i can put u many a more questions u may not b able to answer.
1)Cost to date method
2)Value of work certified method
in cost to date method u first determine stage of completion by dividing cost to date by total estimated contract cost and recognise revenue on its basis. it is usually common in cost plus contracts.
and in value of work certified method u book the revenue on the basis of work certified. It is usually common in fixed price contracts.
So the working out of contract WIP depends upon which contract u r dealing with i.e. fixed price or cost plus, or u can say which method u have adopted to determine contract revenues.
In the first treatment given by u, the profit recognised is worked out by applying a %age on the basis of cost to date. So it seems a cost plus cotract.
and in the second treatment, the profit is already included in the value of work certified plus the cost of work uncertified who's revenue will be recovered once that part of work is certified. and it seems to be a fixed price contract.
u may be able to apply both treatments on same question theoratically but practically its not the case.
Both treatments are correct, its just the type of contract u r dealing with.
and plz do not use in the subject words "lets c how much u know" in future. and if its like that i can put u many a more questions u may not b able to answer.