Calculate profit and loss, Financial Accounting

On 1 January 2008, a young artist called Michelangelo signed a contract with a charity named Art Angels, which supports young artists to do large projects. The agreement requires Michelangelo to paint a night sky with stars, and a day sky with cherubs and roses on the inside of the enormous dome of the building where Art Angels is housed, and stipulates a 36 month contract with a total sales value of £300,000. Michelangelo expects to spend 25 per cent of this amount on painting materials and the rent of scaffolding, spread out evenly over the 36 months. As he is rather short of cash, he receives an advance of £25,000 when signing the contract. He will receive another £25,000 at the end of the year if he has completed one third of the dome, then £50,000 at the end of the second year if he has completed two thirds of the dome, and the remaining £200,000 at the end of the third year if he has completed painting the whole dome.

((a) Calculate Michelangelo's profit or loss at the end of each year on a cash basis and on an accruals basis, assuming that Michelangelo's expectations regarding his expenses were correct and that the expenses had been paid for in cash, and assuming that he recognises revenues as he earns them in accordance with the contract.

(b) How does Michelangelo account for the difference between cash receipts and revenues in his accruals-based financial statements at the end of each year?

(c) It may seem unfair that Michelangelo will receive most of the money for the contract at the end of the three years. Explain, in no more than 200 words, what reasons Art Angels may have had to stipulate these conditions.

 

Posted Date: 2/22/2013 12:40:20 AM | Location : United States







Related Discussions:- Calculate profit and loss, Assignment Help, Ask Question on Calculate profit and loss, Get Answer, Expert's Help, Calculate profit and loss Discussions

Write discussion on Calculate profit and loss
Your posts are moderated
Related Questions
PRESUMPTION OF SURVIVORSHIP Where two or more persons have died in circumstances rendering it uncertain which of them survived the other or others, the deaths shall, for all pu

Trend Analysis Trend analysis is an improvement over year-to-year analysis. When a comparison of financial statements covering more than three years i

PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS OF LIMITED COMPANIES This is a chapter dealing with company financial statements, a topic frequently examined. Do not be

Receiver appointed by court If appointed by the court, the receiver must give security as directed by the court. The following notification must be given: (a) The debenture h

1.      Allocation of Indirect Cost Radiology Department in long Island Jewish Hospital incurred $1,267,000 of total indirect cost in five procedures (CC#557: Diagnostic Rad

cheque issued and presented for payment 400 in cash book debit balance

Acquisition during the financial period The holding company may acquire the subsidiary company partway through the financial period such that as at the balance sheet date, the

how does the concept of consistency aid in the analysis of financial system?

Calculation of Efficiency ratios  -                     2008 2009 2010 M Net Sales