SELFTEST CONSTRUCTION CONTRACT

1.According to PSAK 34 Construction contracts, an entity should disclose which TWO of the
following?
A For each material contract, the aggregate costs incurred
B The methods used to determine the contract revenue recognised in the period
C Advances received in cash, analysed according to each material contract
D Total amount of contract revenue recognised in the period

Analysis :

The suitable answer is that this B&D is found in PSAK 34 para 39, namely b) the method used
to determine the contra revenue recognized in the period and c) the method used to determine
the stage of contract completion.

2. Under PSAK 34 Construction contracts, when it is probable that total contract costs on a fixed
price contract will exceed total contract revenue, the expected loss should be (select one
answer)
A set off against profits on other contracts where available
B recognised as an expense immediately, unless revenue to date exceeds costs to date
C apportioned to the years of the contract according to the stage of completion method
D recognised as an expense immediately

Analysis :

The most suitable answer is D, this is in PSAK 36 where the content is "if it is probable that the
total contract costs will exceed the total contract revenue, the estimated loss is immediately
recognized as an expense.

3. The Hogbean Company is a construction company that has the following costs on its
contracts:
(1) Project managers' costs
(2) Destruction of an existing building
(3) Restoration of an old factory.
According to PSAK 34 Construction contracts, which costs may be included within contract
costs?
A Cost (1) and cost (2) only
B Cost (1) and cost (3) only
C Cost (2) and cost (3) only
D Costs (1), (2) and (3)

Analysis :

The appropriate answer is D, because in a construction contract includes a contract of providing

services directly related to the construction of assets, for example services for project managers
and architects and contracts for the destruction or restoration of assets and environmental
restoration after the destruction of assets.

4. The Donovan Company is nearing completion of a construction contract. The work has not
gone to plan due to the issues outlined below.
(1) The client has requested a variation in the contract by requiring new security devices to be
fitted, at an additional cost to Donovan of CU1.0 million. The client has accepted responsibility
for these additional costs even though they were not originally agreed.
(2) Donovan has carried out additional work on the contract as there had been building errors.
This cost CU2.5 million and the client refuses to accept responsibility. Which, if either, of the
above issues should be included in contract revenue, according to PSAK 34 Construction
contracts?
A Neither issue
B Issue (1) only
C Issue (2) only
D Both issue (1) and issue (2)

Analysis :

The answer that includes deviations is B, in PSAK 34 para 13 where the deviation is intended to
be due to a change in specification or design of aet or a contractual change. Changes can be
included in the contract if the customer is most likely to agree to the deviation and the amount of
revenue arising from the deviation, while illustration number 2 includes claims because the
customer is not liable for the changes the contractor has made.

5. According to PSAK 34 Construction contracts, which ONE of the following projects

undertaken by an entity should be accounted for as a construction contract?
A An item of plant and machinery being constructed to be sold as inventory
B An office block being constructed as an investment property
C A warehouse being constructed for the entity's own use
D A large boat being constructed for a third party under a specifically negotiated contract

Analysis :

The correct answer is D, in PSAK 34 para 11 contract revenue consists of the amount of initial
income agreed in the contract and irregularities in contract work, claims and intensive payments
which as long as this is possible to generate income and can be measured reliably.