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Question 10 - IIA-CIA-Part2 discussion

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A manufacturer is under contract to produce and deliver a number of aircraft to a major airline. As part of the contract, the manufacturer is also providing training to the airline's pilots. At the time of the audit, the delivery of the aircraft had fallen substantially behind schedule while the training had already been completed. If half of the aircraft under contract have been delivered, which of the following should the internal auditor expect to be accounted for in the general ledger?

A.
Training costs allocated to the number of aircraft delivered, and the cost of actual production hours completed to date.
Answers
A.
Training costs allocated to the number of aircraft delivered, and the cost of actual production hours completed to date.
B.
All completed training costs, and the cost of actual production hours completed to date.
Answers
B.
All completed training costs, and the cost of actual production hours completed to date.
C.
Training costs allocated to the number of aircraft delivered, and 50% of contracted production costs.
Answers
C.
Training costs allocated to the number of aircraft delivered, and 50% of contracted production costs.
D.
All completed training costs, and 50% of the contracted production costs.
Answers
D.
All completed training costs, and 50% of the contracted production costs.
Suggested answer: B

Explanation:

The accounting treatment should reflect the actual costs incurred. Training costs are recognized as they are completed, regardless of the delivery status of the aircraft. For the aircraft production, the costs should be accounted for based on the actual production hours completed to date. This ensures that the financial records accurately represent the work performed and the expenses incurred.

Reference: = Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) on contract accounting and cost recognition.

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asked 18/09/2024
Robeena Meer
35 questions
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