Balance Sheet using Percentage of Completion

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ruhi22

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Guys, I would appreciate any kind of help here.

In schweser notes(p.50, 2006) for Chapter 2:Accrual Accounting, when we have a look at the balance sheet using Percentage of Completion method, the construction in progress year-end balance is 0 for 2003. Can someone tell me why is it 0?

I'm sure the answer is more obvious than what I am thinking.
 
I have the same question here... I figure it should be 1000:
800 + (8/8)*200
 
mmc, even i get 1000. And the funny thing is if we put 1000 instead of 0 for both construction in progess and advance billings, then we still get the same answer. I dont know why have they put it as 0. The manner in which the balance sheet has been dealt in the text book is very different though- and I found it to be extremely confusing.
 
I agree.
I figure for 2003, both COnstruction-in-progress and Advance Billing all should be 1000.

And this WON'T change anything in Total Assets and Total Liability. But 1000 should appear there.

Which textbook are you refering?
 
mmc Wrote:
-------------------------------------------------------
> I agree.
> I figure for 2003, both COnstruction-in-progress
> and Advance Billing all should be 1000.
>
> And this WON'T change anything in Total Assets and
> Total Liability. But 1000 should appear there.
>
> Which textbook are you refering?


I am not sure of the problem you are reffering to (dont have the notes in front of me), but I hope this helps...

This is how they show you to set it up (in the video series of Schweser):

Asset Side:

Memo*: Construction in Progress: 1000

Net: Contruction in Progress: 0


Liability Side:

Memo*: Advanced Billings: 1000

Net: Advanced Billings: 0


the Memo part does not matter (this is for you)... Much easier this way...


Lets say you came to the conclusion that CIP should be 1000 and AB should be 1000. On the Balance sheet only the NET number appears.... Thus 1000 - 1000 = 0... Therefore, both zero is on the asset side and liability side....

Lest say the CIP was 600 and AB was 800, then the following would be true:


Asset Side:

Memo*: Construction in Progress: 600

Net: Contruction in Progress: 0


Liability Side:

Memo*: Advanced Billings: 800

Net: Advanced Billings: 200


The way they teach it is:

Net the 2 numbers together and look at the answer:

If the answer is Positive, then it is an Asset and is placed under The CIP (On the asset Side)

If the Answer is Negative, then it is a Liability and is placed under the AB (On the liability side)

I am not sure if that answers the question, but hope it helps... If I made a mistake, someone please correct me, otherwise, I think this is the best way to go about this problem...



Edited 1 time(s). Last edit at Monday, August 14, 2006 at 10:10AM by quorky.
 
If I recall correctly, the convention is to net CIP and AB and enter the final number on balance sheet under the appropriate heading (i.e. whichever of the two is positive).
 
Yeah I agree, this is what I was trying to do. I do get a 0 when I put 1000 for CIP and 1000 for Advanced Billings.

I was looking at the Schweser Notes for 2006. Thanks a bunch everyone.
 
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