Questionn.Answer the following questions with regard to the AIA A201TM - GeneralConditions of the Contract for Construction, a required reading item for Module 4:a). An abandoned well was found in the area of a proposed footing, and the wellcap was clearly visible. The contractor claimed additional costs for structural fill.Should the architect approve his claim?b). Does the owner have the right to subcontract out portions of the work directly?c). The building official pointed out that the lack of fire alarms in the projectviolated local building codes. The owner went after the electrical contractor fornegligence in reviewing the drawings. Should the electrical contractor beresponsible for the delay and additional cost in fixing this problem?d). How can the contractor check on the owner's financial strength?e). In the contract, the stipulated allowance for the carpet is $10,000. Thecontractor spent $9,500 (delivery and tax included) on purchasing the carpetchosen by the owner and $1,000 on installation. This project specifies 10% foroverhead and profit markup for change orders. How much adjustment is thecontractor entitled to for this allowance item?f). Why is it important to identify the owner's representative in writing?g). The contractor encountered materially different site conditions duringexcavation. In order to make a claim for additional costs, when does he have to filethe claim?h). Does the owner have the right to reject a general contractor's (GC's)subcontractor who is reasonably capable of performing the work?

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Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

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Chapter8: Investing Activities

Section: Chapter Questions

Problem 2QE

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The primary issue in the accounting for construction contracts is the determination of the percentage of completion and revenue to be recognized during the period. the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. the determination of the rate at which physical performance has been made during the reporting period and the future performance on which future revenues will be allocated. the allocation of costs of a long-lived asset to permit the proper matching of costs with revenues.
Provisions shall be recognized for all of the following, except a. Restructuring costs after a binding sale agreement had been signed b. Future refurbishment costs due to introduction of a new computer system c. Rectificationcosts relating to defective products sold d. Cleaning-up costs of contaminated land when an oil entity has a published policy that it will undertake to clean up all contamination that it causes
Successful completion of a construction project depends on the supply of materials and labor as well as the weather condition. Consider a given project that can be successfully completed if either one of the following conditions prevails: (i) Good weather and at least labor ormaterials are adequately available, (ii) Bad weather but both labor and materials are adequately available.Define:G = Good weatherG' = Bad weatherL = Adequate labor supplyM = Adequate materials supplyC = Successful completionSuppose P(L) = 0.7; P(G) = 0.6 and L is independent of both M and G. If the weather is good, adequate supply of materials is guaranteed, whereas the probability of adequate supply of material is only 50% if bad weather prevails.a. Formulate the event of successful completion in terms of G, L, and M.b. Determine the probability of successful completion.c. If the project was successfully completed, what is the probability that labor supply had been inadequate?
The Hogbean o. Is a construction company that has the following costs on its contracts: 1 Project managers' costs2 Destruction of an existing building3 Restoration of an oldfactory According to IAS 11, Construction Contracts, which costs may be included within constract costs? a. Cost (1) and cost (2) only b. Cost (1) and cost (3) only c. Cost (2) and cost (3) only d. Cost (1), (2), and (3)
When it is probable that total contract costs will exceed total contract revenue, how shall it be accounted for? Group of answer choices The expected loss shall be recognized as an expense immediately only when the outcome of a construction contract cannot be estimated reliably. The expected loss shall be recognized as an expense immediately regardless of the certainty or uncertainty of the outcome of a construction contract. The expected loss shall be accounted for based on company’s policy. The expected loss shall be recognized as an expense by reference to the state of completion of the contract activity at the end of the reporting period when the outcome of a construction contract cannot be estimated reliably. PreviousNext
Which of the following costs shall from part of contract costs of long-term construction contract? a. General administration costs for which reimbursement is not specified in the contract b. Research and development costs for which reimbursement is not specified in the contract c. Construction overheads including costs such as the preparation and processing of construction personnel payroll. d. Selling costs such as broker’s commission
All of the following costs associated with acquiring a building should be capitalized except a. The costs of buildings permits b. The cost of a strike associated with the construction of the building c. the contract price d. the costs of excavation for the building
Certain activities are listed below. Indicate which of the activities would be considered in determining R&D costs. Yes or No? a. Testing a new type of machine to evaluate its potential usefulness in production b. Engineering follow-through in an early phase of commercial production c. Total cost of an R&D building-No alternative use d. Salary of director of R&D e. Current period depreciation on a building housing R&D activities (alternative future use) f. General and administrative costs reasonably allocated to R&D projects g. Patent acquired solely for use in a specific R&D project
Under IFRS, what cost is specifically excluded from being capitalized as part of the cost of an investment property? Question 7 options: a) Delivery of materials needed for construction of an investment property. b) Standard wasted material costs incurred in the construction of an investment property. c) Losses incurred after construction is complete and before the property is fully occupied. d) Replacement of a key component of the investment property with more environmentally friendly parts.
Which statement is true when the outcome of construction contract cannot be estimated reliably? a. Contract costs shall be recognized as an expense in the period when incurred. b. Revenue shall be recognized only to the extent of contract costs incurred that is probable will be recoverable c. All of these statements are true. d. An expected loss on the construction contract shall be recognized as an expense immediately.
Included in the requirements for an intangible asset arising from development (or from the development phase of an internal project) to be recognized, are the following except: multiple choice the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset the technical feasibility of completing the intangible asset so that it will be available for use or sale the legal right to deter others from using the intangible asset its ability to use or sell the intangible asset
An operator treats the resurfacing services included in a service concessionarrangement as a separate performance obligation if: A. The resurfacing is to be performed only when the infrastructure deterioratesbelow a specified condition. B. The resurfacing is to be performed only when the infrastructure is used beyond aspecified level of usage.C. The resurfacing is to be performed regardless of the infrastructure’s condition orlevel of usage.D. Any of these. Letter A is incorrect.

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