SSAP9 - Stocks and long term contracts - Difference of opinion

Hi all,

I would be most grateful for any thoughts, comments and suggestions regarding the following.

 

The client is a housebuilder, developing large properties (£1m+).

The current development has just had its foundations laid, and steels put in place - basically the first stage has been completed.

Therefore the company has decided to make a claim for payment of £50,000 from the prospective buyer as a sort of stage payment and to ease the developers cash flow.

 

Opinion 1

Whether the company says this is just a payment on account, a stage payment or an invoice, it will be subject to SSAP9 reporting requirements as the project will span at least two accounting periods. Therefore, if the attributable costs and overheads are less than the £50,000, a profit is reportable at the year end, and if the attributable costs are more, a loss should be recognised, and prudence and other principles state it should be immediate (or at the next financial reporting date, like SSAP9 would enforce).

IE value of work completed to date to sales (Cr Sales, Dr Debtors/Amounts recoverable on contracts), attributable costs of work completed to date moved from WIP to Cost of Sales (Cr WIP, Dr CoS), and payment made posted against Amounts recoverable on contract (Dr bank, Cr, Amounts Recov on Contract).

 

Opinion 2

The company argues this is 'just' a payment on account, and therefore does not recognise it in the profit and loss account until the project is completed and the completion invoice is raised. IE perhaps wait two years (until it is completed) before reporting any profit for this development.

 

It know which I think is the correct option, however it is the FD who has suggested the alternative, and somewhat dismissed the idea of SSAP9. I do not know whether I am worrying too much about it's treatment, or whether the potential SSAP9 position has been overlooked.

 

Any thoughts highly appreciated.

Comments
There are 4 comments. Login or register to view them.

Long term contract

mbdx7ja2 |

mbdx7ja2

Jobedi |

To confirm, I agree...

mbdx7ja2 |

Thanks mbdx7ja2

Jobedi |