ACCOUNTING RULES Remember the news story at the beginning of chapter 2? Go back to that story and reread it before answering the following questions. This news story deals with two companies (Capita and W S Atkins) both of whom are involved in the construction industry. If a contract takes longer than one year to complete, at what point should the company take
ACCOUNTING RULES Remember the news story at the beginning of chapter 2? Go back to that story and reread it before answering the following questions. This news story deals with two companies (Capita and W S Atkins) both of whom are involved in the construction industry. If a contract takes longer than one year to complete, at what point should the company take
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter2: Financial Statements And The Annual Report
Section: Chapter Questions
Problem 2.1AP
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News story quiz chapter 2 · ACCOUNTING RULES
Remember the news story at the beginning of chapter 2? Go back to that story and reread it
before answering the following questions.
This news story deals with two companies (Capita and W S Atkins) both of whom are
involved in the construction industry. If a contract takes longer than one year to complete, at
what point should the company take any expected profit? A prudent approach would be to
wait until the contract has finished. A highly imprudent one would be to take all the
expected profit when the contract was signed. The accountancy profession’s answer is to take
some profit on account provided certain conditions are met.
Question: In which accounting period should a construction company take the profit on a contract:
(a) when the contract is signed; (b) apportioned over the life of the contract; (c) when the
contract is completed; (d) when the warranty period is over; (e) when it is clear a profit
will be made?
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