On 1 April 2008 CC started work on a three year construction contract. The fixed valueof the contrac

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On 1 April 2008 CC started work on a three year construction contract. The fixed valueof the contract is $63 million.During the year ended 31 March 2009 CC’s contract costs escalated.The value of work done and the cash received for the two years to 31 March 2010 aresummarised below:Year to 31 March2010Year to 31 March2009Percentage of work completed in year 40% 35%Cost incurred in year $26 million $18 millionEstimated further costs after the year end tocomplete project$20 million $36 millionProgress payments received in the year $22 million $15 millionAmounts recognised by CC in its statementof comprehensive income for the year ended31 March 2009Revenue $22 millionCost of sales $18 million(f) AD operates five factories in different locations in a country. Each factory produces adifferent product line and each product line is treated as a separate segment underIFRS 8 Operating Segments.One factory, producing a range of shoes, had an increased annual loss of an estimated$2,000,000 for the year to 31 March 2010. On 1 March 2010 AD’s managementdecided to close the factory and cease the sale of it’s range of shoes. Closure costs,net of any gains on disposal of the assets, are estimated as $150,000.On 31 March 2010 AD’s management is still negotiating payment terms with the shoefactory workforce and has not agreed an actual closure date. AD has not yet attemptedto find a buyer for the factory or its assets.AD’s management wants to completely exclude the shoe factory results from AD’sfinancial statements for the year ended 31 March 2010. They argue that as the shoefactory is about to be closed or sold, it would mislead investors to include the results ofthe shoe factory in the results for the year.Required:Calculate the amounts to be recorded for the above contract in CC’s statement ofcomprehensive income for the year ended 31 March 2010 and in the statement offinancial position at that date.Show all calculated figures to the nearest $ million.(Total for sub-question (e) = 5 marks)Financial Operations 11 May 2010(Total for Section B = 30 marks)End of Section BSection C starts on page 12TURN OVERRequired:Assume that you are a trainee accountant with AD.AD’s finance director has asked you to draft a briefing note that she can use toprepare a response to AD’s management.Your briefing note should explain how AD should treat the shoe factory in its financialstatements for the year ended 31 March 2010.You should make reference to any relevant International Financial ReportingStandards and to CIMA’s Code of Ethics for Professional Accountants.

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