(a) During 2006, Jack Matelot set up a company JTM to construct and refurbish marinas in various ports around Europe. The company’s first accounting period ended on 31 October 2006 and during that period JTM won a contract to refurbish a small marina in St Malo, France. During the year ended 31 October 2007, the company won a further two contracts in Barcelona, Spain and Faro, Portugal. The following extract has been taken from the company’s contract notes as at 31 October 2007:
For each contract, calculate the profit or loss attributable to the year ended 31 October 2007 and show how it would be recognised in the company’s balance sheet at that date. (Show your workings clearly.)
(b) As JTM’s 2007 accounts were being prepared, it became evident that the St Malo contract had slowed down due to a dispute with a neighbouring marina which claimed that the JTM refurbishment had damaged part of its quayside. The company has been told that the cost of repairing the damage would be €150,000. Jack Matelot believes it is a fair estimate and, in the interests of completing the contract on time, has decided to settle the claim. He is not unduly concerned about the amount involved as such eventualities are adequately covered by insurance.
How should this event be dealt with in the 2007 accounts?
(c) During 2007, Jack Matelot had two major worries: (i) the operating performance of JTM had not been as good as expected; and (ii) the planned disposal of surplus property (to finance the agreed acquisition of a competitor MoriceMarinas and the payment of a dividend) had not been successful. As a result of these circumstances, Jack had been warning shareholders not to expect a dividend for 2007. However, during November 2007, the property was unexpectedly disposed of for €5m; which enabled the payment of a 2007 dividend of €1m and the acquisition of MoriceMarinas for €4m.
How should the above events be dealt with in the 2007 accounts?