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Long Term Construction Contracts - Quiz
Long Term Construction Contracts - Quiz
Long Term Construction Contracts - Quiz
In 20x1 and 20x2. it was not highly probable that the project will be completed on time. However. in
20x3, ABC assessed that project will be completed earlier than originally expected and thus it is now
highly probable that the incentive payment will be received.
o 595,0
00
o 634,0
00
o 506,0
00
o 603,0
00
No.2 In 20x1, Gorgeous Too Co. enters into a fixed-price construction contract with a customer. At
contract inception, Gorgeous Too Co. assesses its performance obligations in the contract and concludes
that it has a single performance obligation that is satisfied over Ave. Gorgeous Too Co. determines that
the measure of progress that best depicts its performance on the contract is input method based on
costs incurred.
o 9.000,000
o 5,00,000
o 7.000.000
o 6.000.000
No.3 In 20x1. Salamagi Co. entered into a contract with a customer. The contract stipulates the following:
• Contract price of P20,000.000
• 5% mobilization fee due upon signing of the contract, to be deducted from the final billing
• 10% customer retention on all subsequent progress billings, to be paid to Salamagi on completion of
the project
Salamagi Co. estimated a P5,000,000 gross profit from the project. The percentage of completion
method will be used. In 20x1, Salamagi billed the customer for 50% completion of the project. The
customer accepted all the billings, except one for 10% which was accepted on January of the following
year. All the accepted billings were collected during the year except an 8% billing which was due January
of the following year.
o 2,500.0
00
o 2.720.0
00
o 2.650.0
00
o 2,900.0
00
No.4 Which of the following does not indicate that a promise to transfer a good or service is separately
identifiable?
o The good or service is not highly interrelated with other goods or services promised in the
contract.
o The good or service is not an input to a combined output specified by the customer.
o The good or service does not significantly modify another good or service promised in the
contract.
o The customer's decision of not purchasing a good or service affects the other promised goods
or services in the contract.
No.5 In 20x1. ABC Co. was contracted to build a railroad. The contract price is equal to the construction
costs incurred plus 20% thereof. However, if the project is completed within 4 years, ABC will receive an
additional payment of P200,000. Information on the project is shown below:
In 20x1 and 20x2. it was not highly probable that the project will be completed on time. However, in
20x3. ABC assessed that project will be completed earlier than originally expected and thus it is now
highly probable that the incentive payment will be received.
o 2,610.0
00
o 2.022.0
00
o 2,595.0
00
o 2,056.0
00
No.6 ABC Co. started work on a construction contract in 20x1. The contract price is P However, the
contractual agreement stipulates that if the cumulative inflation reaches or exceeds 26%. the contact
price shall be adjusted upwards by 10%. Additional information on the contract is shown below:
20x1 20x2
Costs incurred to date 2.400.000 4.500.0
00
Estimated costs to complete 3.600.000 1.500.0
00
Cumulative inflation rate 18% 27%
o 2,150.000
o 1.890.000
o 2,060,000
o 1,980.000
No.7 VALEDICTION Construction Co. entered into an P80M fixed price contract for the construction of a
private road for FAREWELL SPEECH, Inc. The performance obligation on
the contract is satisfied over time. VALEDICTION measures its progress on the contract using the "cost-
to- cost" method. The estimated total contract cost is P VALEDICTION incurred the following costs in the
first year of the construction:
Costs of moving equipment and materials to and from the construction site 160.000
Advance payment to subcontractor (the subcontracted work is not yet started) 80.000
o 25M
o 46M
o 36M
o 45M
No.8 In 20x1, Salamagi Co. entered into a contract with a customer. The contract stipulates the following:
• Contract price of P20,000.000
• 5% mobilization fee due upon signing of the contract, to be deducted from the final billing
• 10% customer retention on all subsequent progress billings, to be paid to Salamagi on completion of
the project
Salamagi Co. estimated a P5,000,000 gross profit from the project. The percentage of completion
method will be used. In 20x1. Salamagi billed the customer for 50% completion of the project. The
customer accepted all the billings. except one for 10% which was accepted on January of the following
year. All the accepted billings were collected during the year except an 8% billing which was due January
of the following year.
o 5.760.0
00
o 6.760.0
00
o 6.400.0
00
o 7.400.0
00
NO.9 Information on Red Hot Co.'s construction contracts with customers which commenced during
20x1 is shown below:
Contract 1 Contract 2
Contract price 420,000 300,000
Costs incurred during the year 240,000 280,000
Estimated costs to complete 120,000 40,000
Progress billing 150,000 270,000
Collections 90,000 250,000
At contract inception. Red Hot Co. assessed that its performance obligation in each of Contract 1 and
Contract 2 is satisfied at a point in time, that is, when the construction is completed. How much total
profit (loss) is recognized from the two contracts in 20x1?
o 0
o 20,00
0
o (20,00
0)
o 40,00
0
No.10 Information on Red Hot Co.'s construction contracts with customers which commenced during
20x1 is shown below:
Contract 1 Contract 2
Contract price 420,000 300,000
Costs incurred during the year 240,000 280,000
Estimated costs to complete 120,000 40,000
Progress billing 150,000 270,000
Collections 90,000 250,000
At contract inception. Red Hot Co. assessed that its performance obligation in each of Contract 1 and
Contract 2 is satisfied over time. However, Red Hot Co. determined that the outcome of the
performance obligation in each of the contracts cannot be reasonably measured but contract costs
incurred are recoverable. How much total profit (loss) is recognized from the two contracts in 20x1?
o 0
o 20,00
0
o (20,00
0)
o 40,00
0
No.11 In 20x1. Gorgeous Too Co. enters into a fixed-price construction contract with a customer. At
contract inception, Gorgeous Too Co. assesses its performance obligations in the contract and concludes
that it has a single performance obligation that is satisfied over time. Gorgeous Too Co. determines that
the measure of progress that best depicts its performance on the contract is input method based on
costs incurred.
o 3,000,000
o 4,800,000
o 2,800,000
o 6,000,000
No.12 On July 1. 20x1, Contractor Co. enters into a contract with a customer for the construction of a
building. At contract inception. Contractor Co. assesses the contract in accordance with the principles of
PFRS 15 and concludes that it has a single performance obligation that is satisfied over time. Contractor
Co. then determines that the appropriate measure of its progress on the contract is input method based
on costs incurred. Information on the contract is shown below:
o 200.0
00
o 180.0
00
o 240.0
00
o 220,0
00
o the determination of the percentage of completion and revenue to be recognized during the
period.
o the allocation of costs of a long-lived asset to permit the proper matching of costs with revenues.
o the allocation of contract revenue and contract costs to the accounting periods in which
construction work is performed.
o the determination of the rate at which physical performance has been made during the
reporting period and the future performance on which future revenues will be allocated.
No.14 In 20x1, Silverchair Co. a construction company, enters into a contract with a customer for the
construction of a building. The contract states a fixed fee of P8,700.000. Silverchair's performance
obligation in the contract is satisfied over time. Silverchair uses the 'cost-to-cost' method in measuring
its progress in the contract. Information on the contract follows:
20x1 20x2
Estimated total costs at completion 6.525,000 6,960,0
00
Percentage of completion 15% 6
5
%
How much is the profit recognized in 20x2?
o 840,750
o 1,131,000
o 804,750
o 978,750
No.15 According to PFRS 15, each contract is accounted for separately. However. two or more contracts
entered into at or near the same time with the same customer are combined and accounted for as a
single contract if any of the following conditions are met, except