ROHL Networks, LP #1 - Laserfiche WebLink

Home Browse Search

ROHL NETWORKS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (SEE INDEPENDENT ACCOUNTANT'S REVIEW REPORT) OCTOBER 31,2013 AND 2012 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED) Income Taxes(continued) Rohl Group International,Ltd.files Federal and State tax returns.Rohl Group International,Ltd.may request that the • Partnership provide distributions to pay future income tax liabilities,or alternatively,Rohl Group International,Ltd.may fund future income tax liabilities via capital contributions from its parent. Management Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at October 31, 2013 and 2012, and revenues and expenses during the years then ended.A material estimate that is particularly susceptible to significant change in the near term is described above under the caption Revenue and Cost Recognition. During 2012, an amendment to the Partnership's sole contract in 2011 did not get approved as management expected.Additionally,the Partnership had to redo certain work and as such,incurred additional costs in excess of its original estimate. As a result, the gross margin on this contract was less than the original estimate. The aforementioned reduced the contract's gross profit from approximately$4,765,000 to$3,606,000. This change in estimate reduced 2012 net income by approximately$1,160,000. During 2013, unexpected costs related to one of the Partnership's contracts were incurred. Due to these costs, management revised its original estimate and expects the contract to generate a loss. The anticipated loss of $250,000 was accrued as of October 31, 2013 and is reflected within"Accounts payable and accrued expenses"in the accompanying balance sheets. Warranty The majority of the Partnership's contracts carry a warranty that is provided by the Partnership. Based on past experience,the Partnership has not experienced any material losses associated with warranty claims.At October 31, 2013 and 2012,there is no accrued warranty liability. Contracts Receivable Including Retainage Contracts receivable are based on contracted amounts billed to the customer.The Partnership does not accrue for • interest on past due accounts.As of the date of this report,substantially all the contracts receivable balance had been collected with the exception of the retainage. The retainage is expected to be collected by December 31, 2014. Management has determined that no allowance for doubtful accounts is required at October 31,2013 and 2012.This determination is based on the Partnership's collection history, the creditworthiness of its customers, subsequent • collections of outstanding balances and legal remedies available to the Partnership. The Partnership writes off receivables as a charge to the allowance when,in their estimation, it is probable that the receivable is worthless. • Inventories Inventories consisting of construction materials are stated at the lower of cost(first in, first out method)or market. During the year ended October 31,2012,the Partnership purchased certain materials in anticipation of being awarded a contract.The contract was not awarded and the Partnership recognized an impairment of approximately$111,000 on the inventory during the year ended October 31,2012.Approximately$815,000 of the inventory was sold during the year ended October 31,2013.The remaining inventory at October 31,2013 is expected to be sold or utilized in the Partnership's current contracts in progress.Additionally,a write-down of 575,000 was taken at October 31,2013.