PRACTICE SET # 7B: LONG-TERM CONSTRUCTION CONTRACTS

Problem A.
In 2019, ABACA CO. started work on a P10M fixed price contract. Information on the
construction as of year-end is shown below:

Costs incurred P6,000,000

Estimated costs to complete 5,800,000

1. Compute for the profit or loss on the contract in 2019.

Problem B.
In 2019, BAKAKA CO. started work on a P1M fixed price contract, information on the
construction is shown below:
2019 2020
Costs incurred to date P 200,000 P 825,000
Estimated costs to complete 600,000 275,000
Estimated total contract costs 800,000 1,100,000

2. Compute for the amounts recognized in profit or loss in 2016 and 2017, respectively.

Problem C.
In 2018, LAMLAM KAAYO CO. started work on a P1M fixed price contract. The construction
was completed in 2017. Information on the construction is shown below:

2018 2019 2020

Costs incurred to date P200,000 P825,000 P950,000
Estimated costs to complete 600,000 275,000 -

In 2018 and 2019, LAMLAM KAAYO CO, cannot reasonably measure the outcome of the
performance obligation. However, LAMLAM KAAYO CO. expects to recover the costs incurred
in satisfying the performance obligation.

3. Compute for the amounts recognized in profit or loss in 2018,2019 and 2020
respectively.

Problem D.
The SANA ALL BUILDERS started work on three job sites during the current year. Any
costs incurred are expected to be recoverable. Data relating to the three jobs are
given below:

Site Contract Actual Cost Estimated Billings on Collection

Price Cost to Contract from
Complete Customers
Bulua P500,000 P375,000 - P500,000 500,000
Patag 600,000 254,167 381,250 180,000 100,000
Carmen 250,000 100,000 100,000 150,000 100,000

4.Under percentage of completion method, how much is the Contract Liability?

Problem E.
GG NA Construction Company began a construction project on a building for P3,000,000.
The project was completed during 2019. The accounting records disclosed the following:

2018 2019
Progress billings during the year P1,100,000 P1,900,000
Cost incurred during the year 900,000 1,800,000
Collections on billings during the 700,000 2,300,000
year
Estimated cost to complete 1,800,000 0
Compute for the Contract Asset/Liability account balance, end of 2018.

5. Under percentage of completion method

6. Under zero profit method

Problem F.
SAMOT Construction has started construction work on a project with fixed contract price
of P2,000,000. SAMOT uses the cost-to-cost method in determining the stage of
completion of its projects. The actual costs incurred during the first year of the
project are shown below. All costs are recoverable except when stated otherwise.
Disbursements on these expenditures were made evenly during the construction period.

Cost of materials, labor and overhead used in the work P1,300,000

Additional information:
 Incidental income from the sale of surplus materials amounted to P20,000.
 SAMOT obtained a 12%, P6,000,000 loan and an 8%, P2,000,000 loan, generally to
finance the construction of its various projects. These loans were outstanding
all throughout the construction period.
 The estimated costs to complete as of year- end are P149,600.

Compute for the following:

7. Total costs incurred to date

8. Percentage of completion
9. Profit for the first year of contract

Problem F.
On January 15, 2018, MAOKA BUILDERS INC won a bidding to build the SPORTS CENTER. The
project was to be built at a total cost of P5,500,000 and was scheduled for completion
by September 1, 2020. One clause of the contract stated that MAOKA BUILDERS INC was to
deduct P15,000 from the P6,600,000 bid price for each week that completion was delayed.
Completion was delayed six weeks.

Data for the three - year construction period follows:

2018 2019 2020
Costs incurred each year P1,782,000 P2,068,000 P1,650,000
Estimated costs to complete 3,618,000 1,650,000 0
Contract billings each year 1,700,000 1,500,000 0
Cash collections each year 1,000,000 1,800,000 3,710,000
Operating expenses 100,000 90,000 70,000

10. Net income for the year 2019

11. Balance of the Construction in Progress account net of billings at December 31,
2019 under the percentage of completion method
12. Balance of the Construction in Progress account net of billings at December 31,
2019 under the zero - profit method