ACCOUNTING AND FINANCIAL ENGINEERING - EXAMPLE 34.30 : A biochemical engineering sales contract adopts Cost Recovery Method in its company accounting. Gross profit is realised only when cash collections exceed the total cost of goods sold. Let Y = Original Cost Recovered, Z = Gross Profit Realised. Its property was sold at A = $500k with cost of B = $300k. Its engineering accountant receives cash of C = $240k in first year, D = $180k in second year and E in third year. (a) Find the values of Y and Z in : (i) first year; (ii) second year; (iii) third year. (b) What is the exact value of E if all cash has been fully received from sales?
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Answer Posted / kangchuentat
ACCOUNTING AND FINANCIAL ENGINEERING - ANSWER 34.30 : (a)(i) First year : Y = C = $240k, Z = 0 (since C < B). (ii) Second year : Y = B - C = $300k - $240k = $60k, Z = C + D - B = $240k + $180k - $300k = $120k [ since (C + D) > B ]. (iii) Third year : Y = 0, Z = E. (b) E = A - C - D = $500k - $240k - $180k = $80k. The answer is given by Kang Chuen Tat; PO Box 6263, Dandenong, Victoria VIC 3175, Australia; SMS +61405421706; chuentat@hotmail.com; http://kangchuentat.wordpress.com.
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