a transaction to record the sale of goods on credit would involve a double entry for 613551
Expected loss on a contract with progress billings
On Jan 01, 01, entity E concludes a fixed price contract. Total contract revenue is CU 180. When E prepares its financial statements as at Dec 31, 01, the estimate of total contract costs is CU 160 which are estimated to be incurred in fourths in each of the years 01–04.
However, in 02 contract costs of CU 70 are ultimately incurred. On the basis of a new estimate, E expects that contract costs of CU 50 will be incurred in 03 and that contract costs of CU 40 will be incurred in 04. Consequently, total contracts will be CU 200.
At the end of 02 there is a progress billing in the amount of CU 80. This amount is paid by the customer on Jan 15, 03.
The billing for the remaining amount of CU 100, which is still outstanding on Dec 31, 04, is effected at the beginning of 05.
Prepare any necessary entries in E”s financial statements as at Dec 31 for the years 01–04. The stage of completion is determined according to the cost-to-cost method (IAS 11.30a). E prepares its separate income statement in accordance with the function of expense method (= cost of sales method).