Trueblood Case 12-5

In: Business and Management

Submitted By SeaJack
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TrueBlood Case 12-5 LabCo is a large construction contracting firm involved in the manufacturing of equipment that is used by other companies to manufacture parts and components for planes, jets and other machines and equipment of the air. Each machine produced by LabCo is tailored made to suit each of its many industry customers. As previously stated LabCo uses a variety of contracts primarily percentage-of-completion based, however, is that the correct approach to take? In addition the firm has recently entered into a fixed price contract with a high level of detail and heavily involved performance specification with Halibut, LabCo intends to use the percentage-of-completion method with this contract. When the contract was accepted and commencement began a great deal of difficulties arose that increased the expenses that LabCo had estimated and pushed back the completion date. With all of the difficulties that LabCo has faced the question should it use another method to account for the contract and if so what method should they use? The purpose of this report is to answer the two previously stated questions which are, under IFRS how should LabCo account for its construction contracts in general and what method should they use in regards to their newest contract with Halibut in the face of numerous complications. Normally special order equipment could include numerous costs that the firm would be unaware of until they arose. In regards to LabCo though, their primary task is to create specialized machinery and have done so for quite some time. This experience allows them to have a basic understanding of what costs could occur and how best to estimate them. Another factor to consider is the fact that LabCo primarily designs machinery and equipment for industries that develop parts of aircraft, thus they know what the machines they design will be used for…...

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