a statement of financial position balance sheet shows liabilities of pound 125 000 a 613553

Cost-to-cost method: specific topics

Entity E constructs both standard and customized solar panels. The latter are constructed specifically for a particular contract. The solar panels are used as part of the façade of buildings and are installed at the building site of the customer, ready-to-use.

In 01, E receives orders A and B (among others). Contract A requires customized solar panels, whereas standard solar panels are needed in respect of contract B. Both contracts are fixed price contracts with contract revenue of CU 1,100 and contract costs of CU 1,000 for each contract. In the case of both contracts, all of the solar panels have been delivered to the respective contract site by Dec 31, 01. However, only 20% of them have been installed by Dec 31, 01.

In the case of contract A (B), the costs of constructing the solar panels are CU 800 (CU 600) and the costs of the installation of the solar panels are CU 200 (CU 400).

The remaining solar panels are installed in 02. After the completion of both contracts in June 02, the billing is effected.

Posting status (contract A):

Posting status (contract B):

Required

Prepare any necessary entries in E”s financial statements as at Dec 31 for the years 01 and 02. 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).