Contract price Probability Expected Value

Scenario #1 50,500,000.00 40% 20,200,000.00

Scenario #2 50,000,000.00 20% 10,000,000.00
Scenario #3 49,980,000.00 25% 12,495,000.00
Scenario #4 49,960,000.00 10% 4,996,000.00
Scenario #5 49,940,000.00 5% 2,497,000.00
50,188,000.00

What if the probabilities or scenarios change over time?

Account for it prospectively (change in estimate)
Requirement #
#1.RGP 2021 = P8,750,000
#2. Receivable under View #1 = P2,000,000
#3. Contract Asset under View #1 = P27,750,000
#4. P5,000,000
#5. P1,250,000
Costs Data
2021 2022
Costs incurred to date 35,000,000.00 55,000,000.00
Estimated costs to complete 45,000,000.00 25,000,000.00
Estimated total costs at completion 80,000,000.00 80,000,000.00

According to PFRS 15, for revenue recognized over time such as construction contracts to build or create an asset f
We measure progress towards the satisfaction of the performance obligation using:
1. Input method such as cost-to-cost method (IF SILENT)
2. Output method such as survey of experts and % floor area completed

Progress (Percentage of completion) 2021 2022

Costs already incurred to date 35,000,000.00 55,000,000.00
Total costs at completion 80,000,000.00 80,000,000.00
Percentage of completion 43.750% 68.750%

Realized gross profit computation 2021 2022

Contract price 100,000,000.00 100,000,000.00
Total estimated costs at completion (TEC) (80,000,000.00) (80,000,000.00)
Total estimated gross profit of the project (TEGP) 20,000,000.00 20,000,000.00
% of completion to date 43.750% 68.750%
Realized gross profit to date (CRGP) 8,750,000.00 13,750,000.00
CRGP - PY (8,750,000.00)
RGP for the year 8,750,000.00 5,000,000.00

Revenue computation 2021 2022

Contract price 100,000,000.00 100,000,000.00
% satisfied already (% of completion) 43.750% 68.750%
Revenue to date 43,750,000.00 68,750,000.00
Revenue to date (PY) (43,750,000.00)
CY Revenue 43,750,000.00 25,000,000.00
CY Costs incurred (35,000,000.00) (20,000,000.00)
RGP for the year 8,750,000.00 5,000,000.00

Computation of CIP (Construction in Progress) 2021 2022

Costs incurred to date 35,000,000.00 55,000,000.00
CRGP 8,750,000.00 13,750,000.00
CIP 43,750,000.00 68,750,000.00

Computation of CIP (shortcut ONLY IF TEGP IS POSITIVE) 2021 2022

Contract price 100,000,000.00 100,000,000.00
% of completion 43.750% 68.750%
CIP 43,750,000.00 68,750,000.00
Computation of asset (liability) 2021 2022
CIP 43,750,000.00 68,750,000.00
PB to date (16,000,000.00) (44,000,000.00)
Contract Asset or Additional Receivable (Contract Liability) 27,750,000.00 24,750,000.00
 Journal entries: (VIEW 1)
2023 2021
85,000,000.00 Costs na nagastos na (past)
- Costs na gagastusin pa para matapos (future)
85,000,000.00

o build or create an asset for the customer

2023
85,000,000.00 Costs na nagastos na (past)
85,000,000.00 Total costs at completion of the project
100.000%

2023
100,000,000.00 Changes are accounted for prospectively
(85,000,000.00) Changes are accounted for prospectively
15,000,000.00
100.000%
15,000,000.00
(13,750,000.00)
1,250,000.00

2023
100,000,000.00
100.000%
100,000,000.00
(68,750,000.00)
31,250,000.00
(30,000,000.00)
1,250,000.00

2023
85,000,000.00
15,000,000.00
100,000,000.00

2023
100,000,000.00
100.000%
100,000,000.00
2023
100,000,000.00
(100,000,000.00)
-
ntries: (VIEW 1) Alternative:
Prepaid Contract Costs 35,000,000.00 CIP 35,000,000.00
Cash 35,000,000.00 Cash
To recognize recognition of contract costs as asset

CIP 43,750,000.00 CIP 8,750,000.00

Revenue from Contract 43,750,000.00 Contract Costs 35,000,000.00
To recognize revenue for 2021 Contract Revenue

Cost of Contract 35,000,000.00

Prepaid Contract Costs 35,000,000.00
To record amortization of contract costs (matching principle)

Accounts Receivable 16,000,000.00 Accounts Receiva 16,000,000.00

Progress Billings 16,000,000.00 Progress Billings
To record billing or charging to customer To record billing or charging to customer

Cash 14,000,000.00 Cash 14,000,000.00

Accounts Receivable 14,000,000.00 Accounts Receivable

SFP (View 1)
AR from billings (16M - 14M) 2,000,000.00 PFRS 15: Receivable if right to receive the consideration
Contract Asset
CIP 43,750,000.00
PB (16,000,000.00)
Contract Asset 27,750,000.00 PFRS 15: Contract Asset if right to receive the considera

SFP (View 2)
AR from billings (16M - 14M) 2,000,000.00
Additional receivable
CIP 43,750,000.00
PB (16,000,000.00)
Additional receivable 27,750,000.00
Total receivable under view 2 29,750,000.00 Under View 2, no contract asset since technically billing

So which view is better? The answer is either view is okay

JUST REMEMBER:
At the end of the contract (100% completion) and the customer has accepted the asset
Close the CIP and PB accounts
Progress Billings 100,000,000.00
CIP 100,000,000.00

AND REMEMBER: AT THE END OF THE CONTRACT: CIP = PB TO DATE = CONTRACT PRICE
If may problem na walang contract price, kunin mo yung PB to date at completion.
 35,000,000.00

43,750,000.00

16,000,000.00
ging to customer

14,000,000.00

ght to receive the consideration is unconditional already (since billed already, unconditional)

if right to receive the consideration is still conditional (other than passage of time) [interpretation: conditional on future billing]

act asset since technically billing is passage of time only

tional on future billing]
Costs Data
2021 2022
Costs incurred to date 35,000,000.00 55,000,000.00
Estimated costs to complete 45,000,000.00 25,000,000.00
Estimated total costs at completion 80,000,000.00 80,000,000.00

According to PFRS 15, for revenue recognized over time such as construction contracts to build or create an asset f
We measure progress towards the satisfaction of the performance obligation using:
1. Input method such as cost-to-cost method (IF SILENT)
2. Output method such as survey of experts and % floor area completed

Progress (Percentage of completion) 2021 2022

Costs already incurred to date 35,000,000.00 55,000,000.00
Total costs at completion 80,000,000.00 80,000,000.00
Percentage of completion 43.750% 68.750%

Realized gross profit computation (cost recovery) 2021 2022

Contract price 100,000,000.00 100,000,000.00
Total estimated costs at completion (TEC) (80,000,000.00) (80,000,000.00)
Total estimated gross profit of the project (TEGP) 20,000,000.00 20,000,000.00
% of completion to date 0.000% 0.000%
Realized gross profit to date (CRGP) - -
CRGP - PY -
RGP for the year - -

2021 2022
Revenue (workback) 35,000,000.00 20,000,000.00
Cost (35,000,000.00) (20,000,000.00)
RGP - -

2021 2022
CITD 35,000,000.00 55,000,000.00
CRGP - -
CIP 35,000,000.00 55,000,000.00
PB (16,000,000.00) (44,000,000.00)
Excess of CIP over PB 19,000,000.00 11,000,000.00
 2023
85,000,000.00 Costs na nagastos na (past)
- Costs na gagastusin pa para matapos (future)
85,000,000.00

to build or create an asset for the customer

2023
85,000,000.00 Costs na nagastos na (past)
85,000,000.00 Total costs at completion of the project
100.000%

2023
100,000,000.00 Changes are accounted for prospectively
(85,000,000.00) Changes are accounted for prospectively
15,000,000.00
100.000%
15,000,000.00
-
15,000,000.00

2023
45,000,000.00
(30,000,000.00)
15,000,000.00

2023
85,000,000.00
15,000,000.00
100,000,000.00
(100,000,000.00)
-
Costs Data
2021 2022
Costs incurred to date 35,000,000.00 55,000,000.00
Estimated costs to complete 45,000,000.00 25,000,000.00
Estimated total costs at completion 80,000,000.00 80,000,000.00

According to PFRS 15, for revenue recognized over time such as construction contracts to build or create an asset for the cust
We measure progress towards the satisfaction of the performance obligation using:
1. Input method such as cost-to-cost method (IF SILENT)
2. Output method such as survey of experts and % floor area completed

Progress (Percentage of completion) 2021 2022

Costs already incurred to date 35,000,000.00 55,000,000.00
Total costs at completion 80,000,000.00 80,000,000.00
Percentage of completion (input method) 43.750% 68.750%

Assuming output method, do not use the input method % of completion

Realized gross profit computation 2021 2022
Contract price 100,000,000.00 100,000,000.00
Total estimated costs at completion (TEC) (80,000,000.00) (80,000,000.00)
Total estimated gross profit of the project (TEGP) 20,000,000.00 20,000,000.00
% of completion to date (output method) 40.000% 65.000%
Realized gross profit to date (CRGP) 8,000,000.00 13,000,000.00
CRGP - PY (8,000,000.00)
RGP for the year 8,000,000.00 5,000,000.00

Revenue computation 2021 2022

Contract price 100,000,000.00 100,000,000.00
% satisfied already (% of completion) 40.000% 65.000%
Revenue to date 40,000,000.00 65,000,000.00
Revenue to date (PY) (40,000,000.00)
CY Revenue 40,000,000.00 25,000,000.00
CY Costs incurred (TEC x % of completion output)
RGP for the year 40,000,000.00 25,000,000.00

Computation of CIP (Construction in Progress) 2021 2022

Costs incurred to date 35,000,000.00 55,000,000.00
CRGP 8,000,000.00 13,000,000.00
CIP 43,000,000.00 68,000,000.00

Computation of CIP (shortcut ONLY IF TEGP IS POSITIVE) 2021 2022

Contract price 100,000,000.00 100,000,000.00
% of completion 40.000% 65.000%
CIP 40,000,000.00 65,000,000.00
Computation of asset (liability) 2021 2022
CIP 40,000,000.00 65,000,000.00
PB to date (16,000,000.00) (44,000,000.00)
Contract Asset or Additional Receivable (Contract Liability) 24,000,000.00 21,000,000.00
 2023
85,000,000.00
-
85,000,000.00

build or create an asset for the customer

2023
85,000,000.00
85,000,000.00
100.000%

2023
100,000,000.00
(85,000,000.00)
15,000,000.00
100.000% ASSUMED based from estimate of engineer
15,000,000.00
(13,000,000.00)
2,000,000.00

2023 Computation for Contract Costs 2021

100,000,000.00 TEC 80,000,000.00
100.000% % 40.000%
100,000,000.00 Cumulative costs charged to expense 32,000,000.00
(65,000,000.00) PY Cumulative
35,000,000.00 Costs during the year 32,000,000.00

35,000,000.00 Costs of purchase 35,000,000.00

Cumulative costs charged to expense (32,000,000.00)
2023 Prepaid costs (Unamortized costs) 3,000,000.00
85,000,000.00
15,000,000.00
100,000,000.00

2023
100,000,000.00
100.000%
100,000,000.00
2023
100,000,000.00
(100,000,000.00)
-
2022 2023 2021 Prepaid Contract Costs
80,000,000.00 85,000,000.00 Cash
65.000% 100.000% MATCHING PRINCIPLE To recognize recognition of contract cost
52,000,000.00 85,000,000.00
(32,000,000.00) (52,000,000.00) CIP
20,000,000.00 33,000,000.00 Revenue from Contract
To recognize revenue for 2021
55,000,000.00 85,000,000.00
(52,000,000.00) (85,000,000.00) Cost of Contract
3,000,000.00 - Prepaid Contract Costs
To record amortization of contract costs
COSTS ONLY (REVENUE NOT SHOWN ANYMORE)
2022 Prepaid Contract Costs
Cash

Cost of Contract
Prepaid Contract Costs
2023 Prepaid Contract Costs
Cash

Cost of Contract
Prepaid Contract Costs
 35,000,000.00
35,000,000.00
ecognition of contract costs as asset

40,000,000.00
40,000,000.00
evenue for 2021

32,000,000.00
32,000,000.00
rtization of contract costs (matching principle)
OT SHOWN ANYMORE)
20,000,000.00
20,000,000.00

20,000,000.00
20,000,000.00
30,000,000.00
30,000,000.00

33,000,000.00
33,000,000.00
Site labor costs
Cost of materials used in construction
Cost of materials not yet used in construction
Depreciation of construction equipment
Depreciation of idle equipment not used in any projects
Cost of design and technical assistance directly related to the project
Insurance costs (75% related to other projects; 25% related to this project)
Research and development costs for which reimbursement is not specified in the contract

General and administrative costs for which reimbursement is specified in the contract
Construction overhead
Site supervision costs
Advance payments to subcontractors (work not yet started)
Selling costs

Total contract costs except for materials not yet used

Materials not yet used:

- If materials not yet used is exclusive or specific to that project, it is already contract costs even if unused (already part of costs
- If materials not yet used is not exclusive or specific to that project, it is unamortized or part of assets (if silent) (will be part of

Question 1: if silent (general)

Question 2: if exclusive
 Classification
10,500,000 Contract costs
8,000,000 Contract costs
1,000,000 It depends (PIC Q&A 2020-02)
500,000 Contract costs
50,000 OPEX
300,000 Contract costs
400,000 25% contract costs
60,000
OPEX

90,000
Contract costs
130,000 Contract costs
200,000 Contract costs
1,500,000 Unamortized
80,000 OPEX if silent

19,820,000.00

osts even if unused (already part of costs incurred to date)

or part of assets (if silent) (will be part of costs to complete)

19,820,000.00

20,820,000.00
Question 1:
Mobilization fee (50M x 10%) 5,000,000.00
Collection from progress billings
06/06/2021 (20% of 50M) 10,000,000.00
10/12/2021 (10% of 50M) 5,000,000.00
12/26/2021 (12/30/2021 acceptance) - Not yet collected in 2021
Total 15,000,000.00
Less 10% retention (1,500,000.00)
Collection from progress billings 13,500,000.00
Total collections in 2021 18,500,000.00

NOTE: Mobilization fee and retention provisions DO NOT affect RGP computation because these are purely balance sheet acc

Question 2: RGP in 2021 = P1,000,000

Question 3: RGP in 2022 = P3,455,000
Question 4: Excess of CIP over PB, 2022 = P2,750,000

Initial receipt of mobilization fee

Cash 5,000,000.00
 Liability/Unearned Income/Contract Liability 5,000,000.00
To be charged against final billing

Normal entry for progress billing is:

Accounts Receivable XX
Progress Billings XX

Final billing (example of P12,000,000)

Accounts Receivable 7,000,000.00 (12M - mobilization fee of 5M)
Liability 5,000,000.00 Charging of mobilization fee
Progress Billinga 12,000,000.00
 2021
Contract price 50,000,000.00
TEC (47,500,000.00)
TEGP 2,500,000.00
% 40%
CGP 1,000,000.00
PY
CY 1,000,000.00

CIP computation 2021

Contract price 50,000,000.00
% 0.40
CIP 20,000,000.00

PB computation 2021
6-Jun-21 20%
12-Oct-21 10%
26-Dec-21 7%
12-Jul-22
23-Dec-22
PB % to date 37%
Contract price 50,000,000.00
PB to date 18,500,000.00

CIP 20,000,000.00
PB to date (18,500,000.00)
Contract Asset (Contract Liability) 1,500,000.00

are purely balance sheet accounts)

2022 Cost Data 2021 2022
55,000,000.00 CITD 19,000,000.00 45,045,000.00
(50,050,000.00) C2C 28,500,000.00 5,005,000.00
4,950,000.00 TEC 47,500,000.00 50,050,000.00
90%
4,455,000.00 % 0.40 0.90
(1,000,000.00)
3,455,000.00

2022
55,000,000.00
0.90
49,500,000.00

2022
20%
10%
7%
30%
18%
85%
55,000,000.00
46,750,000.00

49,500,000.00
(46,750,000.00)
2,750,000.00 View #1
If the outcome cannot be estimated reliably - use cost recovery method
% of completion is either 0% or 100%
CP 150,000,000.00
TEC (100,000,000.00) Example
TEGP 50,000,000.00
% 0% Cost recovery
RGP -

How much is the revenue? Zero? NO!!!!

Revenue 5,000,000.00
Costs (5,000,000.00)
RGP -
If negative TEGP, it means that the construction contract is expected to be completed at a loss
It is considered as an onerous contract (PAS 37)

Onerous contract will be measured at the least cost of:

(1) fulfilling the contract; or
(2) exiting the contract or terminating the contract
 2020 2021 2022 Costs Data
Contract price 100,000,000.00 100,000,000.00 100,000,000.00 CITD
TEC (130,000,000.00) (110,000,000.00) (90,000,000.00) C2C
TEGP (30,000,000.00) (10,000,000.00) 10,000,000.00 TEC
% 100% 100% 77.78% NOTE: If TEGP is negative, use 100%
CRGP (30,000,000.00) (10,000,000.00) 7,777,777.78 %
Less: PY 30,000,000.00 10,000,000.00
CY (30,000,000.00) 20,000,000.00 17,777,777.78

Revenue computation 2020 2021 2022

Contract price 100,000,000.00 100,000,000.00 100,000,000.00
% of completion 30.77% 45.45% 77.78%
Cumulative revenue 30,769,230.77 45,454,545.45 77,777,777.78
PY (30,769,230.77) (45,454,545.45)
CY Revenue 30,769,230.77 14,685,314.69 32,323,232.32
Costs - actual (40,000,000.00) (10,000,000.00) (20,000,000.00) Change in CITD
Change in provision (20,769,230.77) 15,314,685.31 5,454,545.45 Reversal of provision in 2021 and 2022
RGP (30,000,000.00) 20,000,000.00 17,777,777.78

CIP Computation 2020 2021 2022

CITD 40,000,000.00 50,000,000.00 70,000,000.00
CRGP (30,000,000.00) (10,000,000.00) 7,777,777.78
CIP 10,000,000.00 40,000,000.00 77,777,777.78
Less: PB to date ?? ?? ??
Excess of CIP over PB XX XX XX
 2020 2021 2022
40,000,000.00 50,000,000.00 70,000,000.00
90,000,000.00 60,000,000.00 20,000,000.00
130,000,000.00 110,000,000.00 90,000,000.00
GP is negative, use 100%
30.77% 45.45% 77.78%

provision in 2021 and 2022

 2021 2022 2023 Costs Data
Contract price 100,000,000.00 100,000,000.00 109,250,000.00 CITD
TEC (80,000,000.00) (95,250,000.00) (108,000,000.00) C2C
TEGP 20,000,000.00 4,750,000.00 1,250,000.00 TEC
% 12.50% 60% 100%
CRGP 2,500,000.00 2,850,000.00 1,250,000.00 CITD
PY (2,500,000.00) (2,850,000.00) TEC
CY RGP 2,500,000.00 350,000.00 (1,600,000.00) %

Question 1: 109,250,000 new contract price

Question 2:
CITD - 2023 108,000,000.00
CITD - 2022 (57,150,000.00)
Increase in CITD 50,850,000.00 Costs in 2023
2021 2022 2023
10,000,000.00 57,150,000.00 108,000,000.00
70,000,000.00 38,100,000.00 -
80,000,000.00 95,250,000.00 108,000,000.00

10,000,000.00 57,150,000.00 108,000,000.00

80,000,000.00 95,250,000.00 108,000,000.00
12.50% 60% 100%