Ilagan Jester M.

BSA-III

In 2018, Electrified Construction Co. enters into a contract to construct a building for a
customer. Electrified identifies its performance obligation to be satisfied over time.
Electrified measures its progress on the contract based on costs incurred. The contract
price is P20,000,000. Electrified has an unconditional right to all billings made in
accordance with the billing schedule stated in the contract. Information on the
construction is as follows:
Item 2018 2019 2020
P
Costs incurred each year 7,320,000 1,920,000
8,160,000
Billings each year 10,000,000 7,000,000 3,000,000
Collections received on billings each year 9,500,000 6,650,000 3,850,000
Estimated cost to complete at each year-end 8,840,000 1,720,000 -        
Compute for the gross profits in 2018-2020 under percentage of completion method.

Percentage of Completion Method

  2018 2019 2020
(1)  Total contract price P 20,000,000 P 20,000,000 P 20,000,000
(2)  Costs incurred to date 8,160,000 15,480,000 17,400,000
(3)  Estimated costs to complete 8,840,000 1,720,000 -        
(4)  Total estimated costs 17,000,000 17,200,000 17,400,000
(5)  Expected gross profit 3,000,000 2,800,000 2,600,000
Multiply by the percentage of completion
48% 90% 100%
(2) ÷ (4)
Gross profit earned to date 1,440,000 2,520,000 2,600,000
Less: Gross profit earned in prior years - 1,440,000 2,520,000
Gross profit earned this year P 1,440,000 P 1,080,000 P80,000