What on Earth is Attributable Profit? 🤔
Ever wondered where all the net earnings of your long-term contracts skedaddle to? Enter the superhero of contract accounting: Attributable Profit! Attributable profit is the portion of total estimated profit from a long-term contract, after setting aside estimated remedial (think fixing boo-boos 🩹) and maintenance costs. Essentially, it describes the fair share of profit for the work completed as of a particular accounting date.
The Long-Term Relationship: Understanding Your Contracts 💼
To grasp the true essence of attributable profit, you need to be familiar with long-term contracts. These are agreements that span multiple accounting periods, AKA an accountant’s version of a Netflix series you can’t binge-watch in one sitting. Each episode (or period) deserves its fair share of the earnings pie.
📝 Formula for Attributable Profit
Here’s the secret recipe to cook up some attributable profit:
Estimated Profit attributable to Completed Work = (Total Estimated Profit - Non-recoverable Costs) x (Percentage of Work Completed)
Mathematically speaking:
AP = (TEP - NRC) x PWC
- AP = Attributable Profit
- TEP = Total Estimated Profit
- NRC = Non-Recoverable Costs
- PWC = Percentage of Work Completed
Attributable Profit in Action 🧑🏫
Let’s say you’re building an enchanted accounting castle 🏰 (a timeless classic project!). If your wizards (uh, contractors) have completed 50% of the castle and the total estimated profit is $1,000,000 after accounting for $200,000 of costs for fixing dragon-induced damages (yes, remedial costs), what portion of the profits belong to our brave adventurers now?
AP = ($1,000,000 - $200,000) x 0.5
AP = $800,000 x 0.5
AP = $400,000
Voila, the brave adventurers deserve $400,000 for their valiant completed work thus far!
Caveats: The Plot Twists of Attributable Profit 😱
- Remedial Costs 🛠: Ensure all fixing and maintenance have been adequately budgeted. No one likes end-of-season surprise plot twists!
- Non-Recoverable Costs: Allocate non-recoverable expenses judiciously. Skeletons from the closet should not spook your profit margins!
- Completion Percentages: Be transparent with your work completion percentages to keep things crystal clear like fairy tale happy endings!
Fun with Charts & Diagrams 📊
A diagram is worth a thousand words—or so they say. Let’s visualize it with some Mermaid magic:
graph LR
A[Total Estimated Profit] -->|Subtract| B[Non-Recoverable Costs]
B --> C[Estimated Profit After Costs]
C -->|Times| D[Percentage of Work Completed]
D --> E[Attributable Profit]
Our beautiful graph translates our journey from total estimated profits to the highly sought-after Attributable Profit!
