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    DAYAG Prac Construction

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    Cielo Decillo

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    © All Rights Reserved
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    Chapter 4 ; Revenue Recognition - Contract with Customers: Construction Accounting Introduction Generally, companies recognize revenue ot the point of sole because thot is when tne performance obligation is satisfied. Though, os indicated in IFRS (PFRS) 15, wherein under-certain circumstances, companies recognize revenue over time. Under certain situations, companies recognize revenue over time. It should be noted that the most notable framework in revenue recognition in which revenue may be recognized over time is long-term construction contract accounting. Property developers and construction companies ore typical for their contracts with customers of a long-term nature.The biggest challenge is to decide whether the company should recognize revenve over time (spread during individual years of construction) orat the point of time (one-time at the completion of a contract]. For property developers and construction companies, especially one situation is crucial: when the entity's performance does not create an asset with altemative use to the entity and the entity has an enforceable right to payment for performance completed to date, then the revenue is recognized over time. Construction Contract ‘A construction contract is o contract specifically negotiated for the construction of an ‘asset or a combination of assets that are closely interrelated.or interdependent in terms of their design, technology and function or their ultimate purpos¢ or use. Types of Construction Contract (or Contract Price): 1. Fixed price contract 2. Cost plus contract Construction Revenue Construction revenue is the fotal amount of consideration receivable under the contract. In the early stages of a contract, the contract revenue will often be an estimate of what the final amount will be, as it may be dependent on the outcome of future events. Contract revenue may alter where it Is possible for the contractor to make claims against the customer, or a third party, for costs that were not originally included in the contract. 239 240 WN. Chapter 4 Contract revenue comprises: The initial amount of revenue agreed in the contract The variations In contract work and claims, to the extent th Ps It is probable that they will result in revenue - They are capable of being reliably measured. Contract revenue is reduced by the amount of any penalties arising from delays cause by the contractor in the completion of the contract. The result is that the construction revenue is measurable at fair value, In the cose of any variation, claim, or incentive payment, two factors should be assesseg to determine whether or not contract revenue should be recognized: 1 It is probable that the customer will accept the variation or claim, or that the Contract Is sufficiently advanced that the performance criteria will be met; ang, 2 The amount of the revenue can be rellably measurable. Construction Costs PFRS (IFRS) 15 states that the following cost must be capitalized: 1. The incremental costs of obtaining a contract 2. The cost of fulfiling a contract if they do not fall within the scope of another standard [such as PAS (IAS) 2 - Inventories] and the entity expects them fo be recovered, 3 Companies divice cost fo fulfil a contract or fulfillment costs (contract acquisition costs) into two ‘categories: e Those that give rise to an asset. Those that are expensed as incurred, The capitalized costs will be amorfized as revenue is recognized. This means that they will be expensed to cost of construction/sales as the contract progresses. General contract activity costs should be allocated systematically and rationally, and all costs with similar characteristics should be treated consistently. The allocation should be based on the normal level of construction activity. Borrowing Cost may be attributed in this way. Method of Revenue Recognition in Construction Accounting Revenue recognition depends on the performance obllgation(s): Over Time / Percentage of Completion Polnt In Time / Cost Recovery Method ot Zero-Profit Approach 7 ‘company recognizes revenue over time if at least one of the following three criteria is 1 The customer simultaneous! ly receives and consumes the benefits of the seller's Lid as itis performed of the goods or services (while the Contract is being fulfilled : “8. Meathly Payroll processing service). 'stomer controls as the asset as it created or enhar Z Inced /.e., when the wmenanY’s Performance creates or enhances on asset (e.g., work In process oF ‘Ontractor builds an extension into a customer's existing school building). y evenwe Recognition = Contract with Customers: Construction Accounting 241 The seller is creating an asset that has no alternative use fo the seller, arr the weer thas the legol right to receive payment for progress to date, as when a comparry manulactures customized produc! (e.g., construction contract). Another company would not need to substantially re-perform the work the comprar, has completed to date if that other company were to fulfil he remaining ob/igation to the customer. The company has a right to payment for its performanc completed to date, and it expects to fulfil the contract as promised, ’ If criterion 1, 2 or 3 is met, then a company recognizes revenue OVER TIME if it can reasonably estimate its progress toward satisfaction of the performance obfigations. Company recognizes revenues and gross profits each period based upon the progress of the construction—refenred to as the percentage-of-completion (Over Time) method. If the criteria for recognition are not met, the company recognizes revenues and gross profit at a POINT IN TIME. i.e., when the contract is completed. Or if progress Cannot be reliably measured then revenue can only be recognized up to the recoverable costs incumed. Then, the company recognizes revenues and gross profit when the contract is completed, referred to as the cost-recovery (zero-profit/point in time) method. This method recognizes revenue only to the extent of costs incured that are expected to be recoverable. Only atter all costs are incurred is gross profit recognized. Percentage-of-Completion (Over Time) The percentage-of-completion method is an application of the accrual assumption. This, method is used when the outcome of the construction contract can be estimated reliably, contract revenue ond contract costs associated with the construction contract should be recognized as revenue and expenses, respectively, by reference to the stage of completion of the contract activity at the end of the reporting period. Measuring the Percentage-ol-Completion (Over Time) The percentage-of-completion approach avoids the mismatch between costs being recognized as they ore incued and revenue only being recognized when the contract is completed. This would not reflect commercial substance, because the contractor eams revenues as the project activity progresses. Various methods are currently used in practice to measure the earnings process. Depending on the nature of the contract, they can be conveniently grouped into two. categories: input and output measures. .n Input Measures/Cost Basis. Input measures are made in relation to the costs or efforts devoted to a contract. + Input methods recognize revenue on the bosis of the efforts or inputs to satisty the performance obligation relative to the total expected inputs. Examples of input methodsincludeslabor-nours worked, costs incurred, ime elapsed and resources consumed Revenve can be recognized on a straight-line basis if inputs are used evenly throughout the performance period. _——__—Lhpter 4 tionship bolwoon & UNll of in d relantio.cosl molhod and sovmes sumer They ore based on an established OF WN Oy cost and productivity. They include |he widely Us variations of elforts-expended 5 Incurred). Cost-to-cost metho ee a ocled costs I applied yy The percentage that aio be recognized 10 date ovr Ihe EON On EE a poxe on sar b. _ Efforts-expended methods. the ellos-exPen sed labor pesos, maching measure of work performed. ie a reine degree of completion i; eer ‘cost approach: the ratio hours, or material quantities : measured in a way similar fo the use In ee ol the efforts expended fo date to the es on the entire contract. n of contract “ dbeat 10 fol! timated total 2 Output Measures/Sales Basis ‘Output measures are made in fer hieved. Examples of output methods inclu performance completed to date (the valu be o measure used to identify the degre d revenve fo be recognized in profit or loss); Unis produced or delivered, tons produced, storey's of a building completed. appraisals of results achieved, kilometers of a highway completed. ‘contract, milestones reached or achieved, time elapsed and values added. .d to evaluate jobs and estimate the percentage of a job completed (surveys of work performed). These estimates are, in reality, output measures ‘and usually are based on the physical progress made a he Contract, This may be appropriate for the construction of buildings. terms of results ac} ‘jer surveys of work performed or 6 of “work certified” to date moy ‘e of completion and therefore Architects and engineers are sometimes aske Cost Recovery Method/Zero-Profit Approach (Point in Time) Cost recovery method(point in time) of consiruction accounting (zero-profit approach) if used when the contract's oulcome cannot be reliably estimated. The treatment below should be followed: 1. Recognize revenve only to the extent of contract costs incurred which are expected fo be recoverable; and 2. Recognize contract costs as on expense In other words, the cost recovery (point in time) method gives rise to zero profil. A zero~ profi approach involves recognizing revenues equal to the amount of costs incured during the period so that no net profit Is recognized. But as soon as the ultimate outcome of a contract can be estimated, the percentage-of-completion Is applied. in the period they are incurred. This no profit/no loss approach reflect the situation néar the be; Ic ginning of a contract, Le. the outcome cannot be reliably estimated, but it is likely to recover Ihe costs. VI, Recognition of Expected or Anticipated Losses When It is probable that fotal contract costs wil will exceed tot expected loss should be recognized as an expense mediate eel gone Recognition = Contract with go tomers: Construction Accounting, the amount of such a loss Is determined inespective of Whether or not work has is Commenced on the i ; the stage of completion of contract activity; ale cc, The amount of profils expect r led fo arise oF y ‘as a single construction contract, Th oo ch ore nat tested vil. Changes in Estimates ihe percentage of completion method is applied on cumulative basis in each accounting period to the current estimates of contract revenue and contract cos! Therefore, the effect of a change in the estimate of contract revenue oF contract costs, or the effect of o change in estimate of the outcome of a contract, is accounted for G5 «@ change in accounting eslimote (see PAS No, ’8. Accounting Changes]. The changed estimates are used in the determination of the amount of revenue and expenses recognized in the income statement in the period in which the change is made and in subsequent periods. vill. Contract Retentions Retentions are’ amounts of progress billings which are not paid until the satisfaction of Conditions specified in the contract for the payment of such ‘amounts or until defects hove been rectified. Progress billings are amounts billed for ‘work performed on a contract snether or not they have been paid by the customer. Advances ore amounts received by the contractor before the related work is performed. IX. Financial Statement Presentation a. Percentage-ot-Completion (Over Time) . Curentasset-Contract Asset. It comprises of otal costs incured on the contract, plus the cumulative recognized profit (or less ‘cumulative recognized loss), less Progress billings (ie., the amounts actvolly invoiced to customers for work Peromed on a contract whether orto! they neve eee paid by the customers). . Conent liability ~ Contract Liability. It comprises of Progress billings less total costs Ferrend on the contract, plus cumulative recognized profit (or less cumulative recognized 105). b. Cost Recovery Method (Point In Time) oe urent asset - Contract Asset. it comprises of total costs incurred on the contract, ess progress billings (I.e., the amounts actually invoiced to customers for work performed on a contract whether of nol they have been paid by the customers), Current liability - Contract Liabilty. tt comprises of progress billings less total costs incurred on the contract. Riksta 1. ining Commotion constvcishight specialized communication sof SESS ikea plecod on oder fore cable ry sia stomrce Sy Re weerwas placedin Apt 20x6. and theses Stabe cenvereg none year. Ine customer has guaranteed to payie® ot the ene of 2s. regardless of progress of cancelation. Inting wil Smopeton stim. ais meonue of progress oward completion net so ng ecconie revenue a compotion os he Conoco? Overtime « b. Point in time 4 Norevenve recogni ed 'No performance obligation 2. DID Construction is constructing ic eaeSes Seeman vomesenbiobant cmon fig on weit oun ne pe copedbledg ta cans ‘other construction ‘company to complete the job. When should Bs recognize revenvesas the bull recognise re ulding is constructed, or atter construction @. Over time c No vert revenue recognized ©. Point in time d. No performance obligation 3. On Jonuary 1, 236, Siver Con |, x, suction Company signed @ eee Gonnecacaee a customer and received PID 000 Taner q arage will be built on the customer’: complete this project, Silver must first bt toor, corstues xe t, uild a concrete floor, const veren bes ond wat, nd inal sta ooo Ser nonmoly chetget one eae ence ‘and P5,000, respectively, for each of obigotonsextin his eonkacte voy How many Performonce 0 Bt a3 4. Fast Amada Pooks ne, individuals. Recently it of Constructs outdoor swimming pools for wealthy ool of 25 yards in lengt btcined an order to build a three-lane swimming thin the customer's Fost Ameser the customer's backyard. Under the contract, JaPook isco obigated to installa water heater and a firaion system, which Toe aa necessary to make a swimming pool fully functional. Componeeit rag ontttuetion was P5S,000. Each of these salt ‘ypicolly cost P40,000, P10,000, and 20,000 ifinstalled seporately. Given the information above, how many performance separ ore ncudedin Is contract? ve 0. 0 2 a4 3. 3 5, Mo Builders Constuction enters info @ contact to design and build @ pial. smalls responsible for the overal management of the project not dentifies various goods and services to be provided, including ongineeting, ste clearance, foundation. procurement, construction of the Snscture. piping and wiring installation of equipment ond finishing, Given ee information above, how mony performance obligalipns are included in this contract? 3. 0, =< 2 b. 1 a3 4, VO Construction specializes in designing and instoliing customized tranufacturing equipment. On February 1, 20x7.isigns a contract to design Bfuly automated wristwatch assembly line for P2 milion, which will be Seltied in cash upon completion of construction. VJD Construction will install the equipment on the client's property, furnish it with @ customized Software package that is integral to operations. and provide consulting semvices that integrate the equipment with VJD Construction's other ‘assembly lines. How many performance obligations exist in this contract? a. 0 c 2 aa a 3 1. DJ Builders Construction builds luxury houses in remote areas. On June 1, 20xé, the company signed a contract to build a house in anundeveloped ‘section of a mountainside, and received P2 million in advance for the. job. To complete the project. the company must construct a pathway leading to the building lol clear alarge hillide, and construct a wooden house. Normally, the company would charge ‘400,000, P1,400,000, and P500,000, respectively, for each of these tasks if done separately. Given ‘the information above, how many performance: obligations are included in this contract? a. 0 co 2 3 a3 Joey Builders enters into @ contract 10 Build OF CONSIUC! (inci men Sno eperates high ise condominium (buildings) for g peg” SRS SST Eig oon completion of the construction ofthe rod e ST There's @ fixed tee for Buld ond operate and any pray Soyress soce oe nen-telundable. Alitems tha! ore deliverables fe Ssorconstonng unis prefabricated cabinets, efc:) have a standa} Yobe There ' provanle evidence of the seling price for the Building g mantensnce but not for operating the condominium. It is determine’ gr tne warsacton pace must be alocoted to the three performer’ gs. How would you account for the performance obligation - ong, or muttaie performance obligation? S 2 0 © 7 a 2 3 See oe canis a one ee Srrnponsetee hai nices encore nae Reen eaeeteeee eter icmocn etna estimates the following completion outcomes: 7 Completed by Probability uly 31, 20%5 65% ‘August 7, 20x5 25% August 14, 20x5, 5 August 21, 2045 % The transoction price fr tis contracts 2. 895,000 c.P585,000 b. PB50,000 d. P552,500 ‘AJD Buicers Construction Company enters ir i tobutd odometer oor P10 000000 who ortonrance bere! i Sa Be ale basedton the timing of completion. The amount as peeateret We ecteosesby 10% perweek for every week beyond ‘completion date. the contract requirements are similar 10 se son-Contract with Customer: Constracton Account 247 woeks late.Determine the prebability-weighted amount for the wo wement to determine the transaction pice. mange 96,000,000 c. P142,200,000 b. P111,000.000 d._P157,000,000 eciocte Inc. hos enleredintoc very proftabe fixed price contract fo Mectrocting a high-ise building over a period of three year. It incurs the creting costs relating fo the contract duting the fist year: Cost of material = P2.5 milion 1 Site lobvor cost = P20 milion, ‘Agreed administrative costs as per contract to be reimbursed by the customer = PI milion. Depreciation of the plant used for the construction = PO.S million, ‘Marketing costs for seling apartments, when they are ready = P10 rrilion. Jotal estimated cost of the project = P18 rrlfion.. the percentage of completion ofthis contract at the year-end is: a. 331/3% [= 60/180) c. 25%{=45/180) b. 27%(=4.5/165) 39% (=7.0/18) 12, Miracle Construkt, Inc. is executing a gigantic project of constructing the tallest boarding house in the country. The projectis expected to take three: years to complete. The company has signed a fixed price contract of P12,000,000 for the construction of this prestigious boarding house. ‘The details of the costs incured to date in 20xé ore: Site 1Ob0F COS enn 1,000,000 Costs of construction MALEHOl ew. 3,000,000 Depreciation of special plant and equipment used in constructing to build the boarding house. 500,000 Marketing and seling costs to get the boarding house in the country the right exposure. sees 1,000,000 Total Total contract cost estimated to complete. 248 4 Calculate the revenue costs and profi to be recognized Using overtime iq 2x6: Revenue Costs _Gross Profit (loss @. 5,400,000 4.500.000 900,000 b. 5409000 5,500,000 (100,000) © 6900000 4500000 1,500,000 d. 6000900 = 5,500,000 900,000 13, The company signed an 800,000 contract to build an environmentally iencky access trail to Morayta, Manila. The project was expected to take approximately 3 years. he folowing information was collected for each yeor of the project Year 1. Year 2, and Year 3: Cost Expected Support Additional Trail feet Adtionat expended addtional timbers [oid support consiructedtral fee ta Gung the "cos! 10” during the timbers to during the be : ‘Yeor completion _yeor beloid _year constructeg Year! Pioocoo P4so.000 150 sso 300015200 Yeo? 150000 750000 300 50 7.500 8200 Yeas 250,00 Eo ow) 0 8/000 “o- ‘Compute the amount of revenue to be recognized in Year 3, assume that the company employs the efforis-expended method of estimating percentage ‘of completion and the company measures its progress by the number of support timbers laid in the trai: a. P428,866 c b. 422.640 a. 14. Using the same information in No. 3, compute the amount of revenue 10 be recognized in Year 3, assume that the company employs an output measure and the company measures its progress by the number of tral feet that have been completed: 0. Pé2B 864 c. P3s0.802 b. 422640 d. Cannot be determined Use the following Information for questions 15-18: Seasons Construction is constructing an office building under contract for ‘Cannon Company. The contract calls for progress bilings and payments of P1,240,000 each quarter. The total contract price is P1 4,880,000 and Seasons estimates tofal costs of P14,200,000. Seasons estimates that the building take 3 years to complete, and commences construction on January 2, 20%5- 350,000 Cannot be determined siston Contract with Customers: Construction Account 4 ww 16. gcomber 31, 20x5, Seasons estimates that itis 30% complete with the o os ‘ruclion, based on costs incured. What is the total ae Revenue corm Long-Term Contracts recognized for 2045 ond whats he balance in fom egouns Receivable AEcoUN! assuming Cannon Company has Rot se ils last quarterly payment? o ie ee ‘Accounts Reveme Receivable = Reverwe —Receimable . 4960000 4960000 c. P4.464000 P 1,240,000 & p4260.000 1.240.000. PA260000 P.4960,000 At December 31, 20x5, Seasons Construction estimates that it is 75% Complete with the building: however, the estimate of total costs to be sreurred has risen to P14,400,000 due to unanticipated price increases. At December 31, 20x4, Seasons estimated it was 30% complete. What is the jotal amount of Construction Expenses that Seasons will recognize for the year ended December 31. 20x5¢ c. P10,800,000 c. b. P 6,540,000 a. 6,390,000 6,300,000 At December 31, 20x5, Seasons Construction estimates that it is 75% complete with the building: however, the estimate of total costs to be incurred has risen to P14,400,000 due to unanticipated price increases. Whats reported in the balance sheet at December31, 20x5 for Seasons as the difference between the Construction in Process and the Bilings on. Construction in Process accounts, and is it a debit or a credit? ifference between the account Debit/Credit a. 3,380,000 Credit b, 1,240,000 Debit e 880,000 . Debit a. 1,240,000 Credit Seasons Construction completes the remaining 25% of the building Construction on December 31, 20x6, as scheduled. AY that time the total Costs of construction are 15,000,000. At December 31, 20x5, the estimates were 75% complete and total costs of P14.400,000. Whats the total amount of Revenue from Long-Term Contracts and Construction Expenses that Seasons will recognize for the year ended December 31, 20x6% Revenue ts Revenue | Expenses 3. Prassogoo Prscooo00 <. 3720000 P4.200000 b. P3,720,000 3,750,000 d._ P3,750,000 P3.750,000 Chapter 4 2 " tage-of-compietion 9. DJ Builders. Inc. has consstentty used the percent me FOS ime) of aecsunting for consiuction-type contracts, During 20%5, 0) sea tect on © 9.000.000 fixed-price construction contract that aSiotetad in 2oxe. DJ's accounting records disclosed the following: 12/1205 12/31/2006 mulotive contract costs inured... P8:900,000 6,300,000 Cumuiotive contract c secn09 Péstno%n Estimated total costs at completion .. How much income would DJ have recognized on this contract for the yer ‘ended December 31, 20x6? a. P100,000 b. 300,000 a. 20. DJ Builders Construction Corporation contracted to consiruct a building for 400,000. Construction began in 20x5 and was completed in 20x6. Data relating to the contract are summarized below: Yearended December31, 205 20% Costs incured .. 200.000 P110,000 Estimated costs to complete... 100,000 - DJ Builders uses the percentage-of-completion method (over time) as the - basis for income recognition. For the years ended December 31, 20x5 and 2016, respectively, DJ Buiders should repo recognized revenue of: 20x5, 20x 20x5_ 20x65 a. P66,667 = P 23,333 c - -o- P 90,000 b. oo 400,000 + d. 266,667 133,333 centage-oF 21. Bon Construction Company has consistently used the per completion method of recognizing income. During 20x5, Bon started ‘on P3,000,000 construction contract which was completed in 20:2. Th? ‘occounting records provided the following data: 2x5 _ 20 — Progress billings... P1,100.000 1,900.00 Costsincured each year ‘300,000 1.800000 Collections . 700000 2.300000 1,800,000 Estimated cost fo complete erg ecg Coie thse: Coston Acai 251 24, uve Coniruction Compony hos consstenty usec the percentoge-ot completion og fod. On January 10, 205, Ube begon work on © PeuDOD conmcton rae roci.Atneinception dae. he estate cos of constuction wosP 4 SOD 00, core Gwang dato rela fo the proges cl he conkoct P 60.000 3,600,000 1.200.000 income recognized at 12/31/20x5...... Cost incurred 1/10/2015 through 12/31/20x¢ Estimated cost to complete at 12/31/20%6... Howmuchincome shoud Ube recognize for the year ended December 31,2016 a. P300,000 c. Pé00,000 b. 525,000 900,000 Pomelo Builders isin the business of constructing apartment buildings. Two buildings were in progress at the beginning of 20x5. The status of these buildings at the beginning of the year were os follows: Contract Costsincured Estimated costs to Contract pice _fo1/1/20x5__complete 1/1/20x5, Apariment-Cubao ——P1,620.000-—P-600,000 840,000 Apariment-Markina 2,520,000 ‘1,540,000 690,000 During 2035, the following costs were incured: 600,000 (estimated cost to complete as of 12/ 31/205, P240,000) ‘Apartment - Marikina... P750000 (job completed) How much is the gross profit in 20x5 if Pomelo uses the percentage-of- completion (over time) method? a. P 97,800 c. 7262200 b. 210,000 d. 360000 During 20x5, Mitch Corporation started a construction job with a total contract price of P400,000. Any costsincurted are expected tobe recoverable. The jot ‘was completed on Decemiber 15, 20x6. Additional data are as follows: Apartment - Cubao. 20x5 20x65 eee costs incurred igre) 255,000 timated remaining costs .. = Billed to customer 24000360000 Received from customer 225000 375000 BB che Under the point tine cost recovery method of constuction accounting BH coproach) what amount shoud Mch recognie cs Goss prof fr se ond20%8e 2015 2016 Se ae oO PO PO oP oe 120,000 b. 75000 120000 d. 120000 320,000 (Adopted 25. The following data relate 16 a constuction job started by Jay Comp curing 20%6: ee Total contract price — i000 Actual costs during 20x8 20.000 Esjimated remaining cosis 40,000 Billed to customer during 20x6 30.000 Received from customer during 20%6 .. 20,000 Any costs incured are expected to be recoverable. Under the cost recovery method-construction accounting (zero-profit approach], what amount should Jay Company recognize as gross profit for 20x6: a PO cc. P10,000 b. 4000 d. 12000 26. The Kiby Construction Company has consistently used the costrecovery method ~ construction accounting method of recognizing income (zero-profit approach point in time) In 2035, it began a construction project to erect a building for P3,000,000. The Project was completed during 20x6. Under this method, the accounting records disclosed the following: (any costsincured ore expected to be recoverable) 20x5 — 2006 Progress bilings during the year 1,100,000 1,900,000 Costs incured during the year . 900,000 1,800,000 Collections on billings during the year 00,000 2,100,000 Esjimated costs to complete the project 1,800,000 . The com sta is ae revenue for the year amounting to: ae 205 ‘2016 ic ~0- 3,000,000 ee - (Ponto k- Tgstoy “ooo y itlon Contract with Customers: Construction Ac 253 ee. Matibay Construction Corporation uses the percentage-of-completion 27. The gf recognizing income from long-term constuction contacts. In meljatibay entered into a fixed-price contract fo construct a bridge for 20x'900,000. Estimated cosls to complete the constuction ond contract rae incurted up to 20x4 were as follows: cos Cumulative Estimated costs costsincured tocomplete ‘sof December 31, 20x4 P 2000000 16,000000 sol December 31, 20x5 11,000,000 11,000,000 ‘asof December 31, 20x6 20.000,000 -4000,000 isthe percentage of completion during the year 20%6? Teac oscoe cc. 0.00% b. 3333% d. 8333% 28, The October 1, 20x4, Oldies Corp. enters a contract to build a sports arena * Which it estimated would cost P3,120,000. Oldies bills its clients at cost plus 20% end recognized construction revenue on apercentage-of-compietion {over fime) basis. Data on this project for 20x4, 20x5, and 20xé totlow: Costs Est'd, Costs _Incured To Complete 2084 P 546,000 2,054,000 25 998,400 1315600 2x6 1,575,600 - Oldies Corps.” gross profit on the project for 206 is: ‘ a. P146,640 cc. 237,160 b. 477,360 d. 624000 i job sites during 2. The Gamboa Construction Company started work on three job si the current year. Any costs incurred are expected to be recoverable. Data lati je jven below: : relating to the three jobs are gi elo eicorls dling: Collectors Costs Site cae incured _tocomplete_oncontracton contract Batonges ‘500,000 + Batangas... P500,000 375,000 500,000 k Y p4o0000 ©=— 100,000 100,000 ont eee ORD yooo00»=—«150,000 100,000 SanFemando 250,000 100,000 a. of contacto in rOgeS fo be repat SS Aa Pine percentage oF completion method «0 the SAS SANCHO FSO OH CEH pein nea {ero;rofi approach) Arompeet Cost Recovery Method Comperon Method of Construction Accounting a prs 700,000 > 738.000 765,000 S 288.000 265,000, ¢ Bes00 200.000 aces Corea separ operon on rua 120, Ding the SSS ea oa cerboeh oth oy Come eon acasurny stm al hot ne Bl folocs elon ore toxe fve yeas fo complete the facilly at a total cost of P4,800,000. Te contoct pice for Construction of the facility is P5,800,000, Dung 2s. DJ Buide incured P1.250,000 in construction costs related fo the BOEC! Because olsng material and labor costs the esfmatedicost focomplsis re contoc: ct Me enc of 20xé 6 P3.750,000, Joey Company was biled for and p90 30% of me controct price in accordance with the contract agreement. is Sumer ogeed. tet ony costs incuredis expected o be recoverable. Compute the omount of contact asset/construction in progress (net) - or progress bilings (net): Point in Time ey Overlime tho Percentage-of- of Consruction necountng eon 290.000 contract fabilty 490,000 contract asset -0- contract asset -0- contract fiabilty 290,000 contract liabiily 490000 contract liability 290,000 contract asset 490000 contract asset Dor Construction Company has consis lenlly used the percentage-o- foo aconenr ca quiceanang income, Dung 20x, Dan entered ec-pic siructon i , Internation relating to the contact fos foloeag nnd (FP H0.000.0% apse p 12/31/20x5_12/31/20x6. Erected oa coe cor ze a ‘Cos at completion Incomerecogra euncohen Prspommn Pegcoon simon ~Controct with Customers. Consiraction Accounting 255 eet ee conte 80 Sete ober : 2 ely Co. tecognizes construction revenue and expenses using the Lovely fage-of-completion method. During 20x5, a single long-term project, 2 Fe a un.which continued through 20x. Informationen the project olows: DS 20 ‘accountsreceivable fom conshuctioncontract P100000 P300.000 Construction expenses . Yoscoo 192000 Eonstuction in progress BS a : Yooceo “20000 Partial blings on contrac! profit recognized from the long-term construction contact in 20x should be a. P 50,000 c. P1280 b. 108,000 3. 728000 sa, During 20%6, Rizza storted work on @ P3,000.000 fixed-price construction contract. Any cossincured ore expected tobe recoverable. The accounting records dsloted the folowing data fr he year ended December 2,208 P Costsincured 7 Esjimated cost to complete 270,000 Progress bilings 1.100000 Collections How much loss should Rizza have recognized in 20x6? . . Pointin Time Overtime (Cero-profitapproach) Percentage-of.Completion Cost Recovery Method of, ‘Method Construction Accounting a. P100,000 Po Oe b. - o- c \00.000 100,000 4. 30,000 a, 34. In May, 20x5, the AJ Company began work on a project that has a contract price of P5,000,000. Any costsincured are expected tobe recoverable. Progress * biling, collections are of equal amount with costs inn ae Cost incured to date... 1,125,000 P3.825,000 e 3,375,000 1.275000 stimated cost to complete 4,500,000 P5,100,000- Totat estimated cost 256 3 _______._ a Initsincome statement for the year 20%6, the company would reco orieee ft a ee rot ies) Point in Time Overtime {ero-profitapproach) PewentageatCamaleton Cost Recovery Method Method cf Construction Accounting c.Praenceo) Pe b. 225000 (75000) © asec) {100,00} a eascen) a 35. No Power Co, was tapped fo build private electric plants in the t. Calovag and Calavan. The following information relat ae le to these project ‘during 20%6. Any costs incured are expected to be r elects ecoverabie -Calavag Calovan_ 10,500,000 - P7.500,009 6000000 7; Sia conto compte sorooco jap lings during the year. 7.000000 1,000.00 Colections during the year... 6000000 1,000,009 What amount of: fit init sen ameunt fers prof fos] shoud he company teportints2012income an Point in Time Time (er0-profitapproach) Percentage-of-Completion Cost Recovery Method Method of Construction Accounting 2. P562.500 15001000) 500000 (00000) © 500000 0 3. (500000) 500,000 36. Uberita Corp. entered into a construct : >. entered i struction agreement in 20x5 that called fora cooed aaa ice oF P9.600,000. Al the beginning of 0x6, a change over erected thet corract Price by P480,000. The company uses the Pret he folowing dala ce obtaneae »*e°oMeM I eaton tothe 205 _ 206, 4,920,000 8,640,000 4920000 2.160000 5280000 8520000 4380000 7,500,000. mnt incured to date Costs to complete. alings made Collection made. sn ¥ profit loss) should Uberita Corp, recognize in 20x62 in to aes pratt OE again Act 3. Fofoioo gress 4. "72000 gros los toon tration fr queson 37 ond 38 the: ion began consinsction work under a three-year conroct. use ‘Corpora! ee pe oo ea aOD 0 Forgas he personage cores a mnecontae For tinoncial accounting purposes he income fo be recog aed 237 fine ren ased on the proportion of costsincured fo total estimated conts each ect ig the contract. The financial statement presentations relating to this Cor fement of Financial Position : ents recelvable—construction contract bitings 200000 CGnsiucton in progress 400.000 120900 stotemer [Pgpme (before tox) on the contract recognized in 20x5, 120,000 gy. How much cash was collected in 20x5 on this contract a. P 40,000 cc. P280,000 b. 200,000 d.P480,000 38. What was the initial estimated total income before tax on this contract? a. “P600,000 ¢. P800,000 b. 640,000 d.P960,000 Use the following information for questions 39and 40: Joey Construction specializes in the construction of commercial and industrial buildings. The contractor is experienced in bidding long-tetm construction projects ofthis type, with the typical project lasting fifteen to twenty-four months. The contractor uses the percentage-of-completion (over time) method of fevenue recognition since, given the characteristics of the contractor's business nd contracts, itis the mos! appropriate method. Progress toward completion S measured on a cost-to-cost basis. Joey began work on a lump-sum contract Ot the beginning of 20x5. As bid, the statistics were as follows: lump-sum price (contract price) P41900,000 Stimated costs pre) Labor swmann P_ 850,000 loterials and subcontractor. 1.750.000 ti taltect costs, —400,000 3,000,000 Moted Gross Profit 1,000,000 is a ——~Aheoterg At the end of the fist year, the folowing was the status of the contract: Biings to gate P2250.009 Cost incest 9 ato 464000 Materials and subcontractor rs * 648,000 ingrecteosts . 13.000 1.305.009 Latest forecast total Cost 3,000,000 J anouG Be noted that included in the ebove costs incured to date were slenderd electrical and mechonical materials stored on the job site, buy reumed eseest79 P 105.000 hese coss should no! be considered the core incumed to dete, % Gomovie the percentage of completion on the contract at the end a 2. 35008, ’. 20008 d. 850% 46.87% 40. Indicate the amount of gross profit hat would be re n this Sees ie cmountot x reportedon this contract 2. P2000 «. Ps ©. 400,000 a pean 667,000, The fhe following information for questions Aland 42 rercottnevey these” per meg cna ome oe 7 Fes 121315, Through 12/31/x5 : rae P 340,000 P 310,000 : Be sap | ee FI pore 100,000 300 pin — 400.000 400,000 £2345.000 £1325,000 £1825,000 21,375,000 ce sion Contract with Customers: Construction Accounting 259 recogni rose ® Contract Costs Estimated curred Through Additional Costs to nc2/B1Le5 Complete Contracts 7 poles P 424,000 P101,000 7 195,000 4ss000 E 350,000 c 123,000 97,000 u 320,000 80,000 7 1,412,000 P733,000 2. Each contract is with a different customer. . Any work remaining to be done on the contracts is expected to be completed in 20xé. The amount reported asincome (loss) under the percentage-of-completion (recognizes revenue over time) method for 20x5 is: a. P 80,000 ¢. P164,000 b. P141,000 d.P186,000 The amount reported as income (loss) under the cost-recovery method (recognizes revenue at point in time) for 20x5 is + a.» P 80,000 c. P164,000 b. P141,000 d.P186,000 BplciConstruction. inc. experienced the following construction activity in 20x5, the first year of operations. Cosh Cost Estimated Total Bilings Collections Incued Additional through through through Costs to Lontract 12/31/xS _1Z/SI/KS 12/3115 Complete x 170,000 —_-P155,000 P182,000 P 63,000 v 115,000 115,000, 100,000 252.000 7 233,000 198,000 158,000, a £823,000 _P518,000 _P468,000 440.000 315,000 He the above contracts is with 4 different customer, and ‘any work amount oot December 31, 20x5is expected to be completed in 206 The (recent fePorted as gross’ profit (lossunder the Cost-tecovery method ‘$onizes revenue at point in time] for 20x5 is: ©. (22,000) ©. P75,000 ©. 53,000 di. P86,400 260 Use the following t 5: Regine following to answer questions 44-46: ‘Safari Homes (RESAH 20x5 and 20x6 under Conte! wih Casts Bevery Ce son Gro sommaried noes cone! with Cactus Development Co, Reever Contract amount [ 3.000, Cost: ps 7/300'008, Gross profit: 205 scones Contract billings: os 100.000 206 1,500,000 ReSA Homes recognizes revenue over time with respect to these contracts, 44, What would be the joumal entry made in 20x5 to recor a. Accounts receivable sooo et Revenue from long-t tracts 0000? long-term contracts b. Accountsreceivable 2:300,009 ‘00000 Gross profit 200.000 Revenue from long-term contracts 1,500,000 ©. Construction in progress 00,000 Cost of construction 1,200,000, Revenue from long-term contracts 2,000,000 4. Accountsreceivable 1,500,000 Bilings in excess of cost "300,000 Revenve for long-term contracts 1,800,000 nits December 31, 20x5, balance sheet, ReSA Homeswould report: a. The contract asset, cost and profits in excess of billings. of 500,000. ° b. The contract liability, bilings in excess of cost, of P300,000. ©. The contract asset, contract amount in excess of billings. of 1,500,000. d. The contract asset, deferred profit, of P400,000. 46. For 20x6, what is the journal entry to record reveniue? @. Accountsreceivable 1,500,000 Revenue from long-term contracts 1,500,000 b. Construction in progress 400,000 Cost of construction 600,000 Revenve from long-term contracts 1,000,000 ©. Cost of constuction 2,900,000 Gros: profit 1,000,000 a. a evetve from long-term contracts 3,000,000 |. Accounisreceivabie 1,500,000 Gout of construction ood Gross pret £00000 Detenedrevenue 300,000 sron Contract with Customers: Consrctio ceo 261 pose fo answer questions 47-49: we tne ogale foritems 41-44, except that ReSA Homes recognizes revenue Dirac pfetion (point in time) with expect fo hese cont po" Id be the joumal entry made in 20x5 to record revenue? orKecountsteceNvable 1,500,000 Revenue from long-term contracts 1.500.000 bp. Accountsreceivable 2,300,000 "Gross profit 800000 Revenue from long-term contracts 1,500,000 c. Construction in progress 800000 Cost of construction 1,200,000 oo Revenve from long-term contracts 2.0004 d, Noentry vg. What wé aieat srnocamon 204 blac ses esa tres wou ae st, of P300,000. 1 soy angsn xcs cos PA . Msn d. The contract asset. deferred profit, of P400,000. i 2 49. For 20x6, what is the journal entry torecord revenue? 000 "Accountsreceivable a Or AC evenve from long-term contracts b. Construction in progress enon Cost of construction . oo Revenue fromlong-term contacts oy, Cost of construction 2000000 Gross profit a sone Revenve from long-term con! vado00 d. Construction in progress ee Cost of construction pr | Revenue from long-term conti 3,000) ss which commenced ding 206: 50. STConstuction Company's constuction jobs WHEN ETE y "Project ¥ p4z0.000 300.000 Contract pric 240.000 280000 Costs incured during 20%6 aoa TOD Estimated costs to complete 250,000 a Biled to customers during 20m 0 Received from custorners during 20x6 "20.000 10,000 General and administrative expenses =~ —-= onal 11s toretxe agreed between the contactor and the clent that any incured are emectad tobe recoverable, What amount of net income pets NOUS ST Constycton Company fepett ins 20x6 income slatementy "°8) Pontin Time Snr onerooch) Overtime feccven Method Percentoge-ot-Completion of Consnvcton Secountng ‘Method a) (60000), S (a0) (10.000) co (70.000) (30,000) 3. (80.000) (40,000) $1. Bonafe Constructors, Inc. has the following data for large jobs in it ? ‘Progress eccount (000 omitted): 9° 0 Ss Jobs in Bokect Actual — Estimated Contract PerCent g Cost Tool Cost Price Complete Yor P8756 = Pi72800 P1920 5 wo Nas? 14875 7500 75 103 53.865 61.250 87,500 cc) joe 2800 39760 55 105 _44s00 © _122310 3 2 The company accounts fori xge jobs by the percentoge of comple {over tine] method: oulput meciutes bing: ere done os folowrs(a 20R {coun payment upon contoct (overtime) sgring. fo) Balonce & bed ‘according Io percentoge of compioton ess an oppicaion of tne down Payment which obo accorcing fo percentege of completion, How much (1) total bilings were made, and “ Howmuch ott binge ‘ond (2) total sevenue that should o. (1) P203,286; (2)P120,060 fll 5.) 99500) 172910 Gh} “aoaoae BY PTARaID (1) 203,286; (2) 172,910 2 Bae oe ee Pro ema ted fo buid the private road network of inZ yeas ond the contac! porided for or omPECIES Tobe Med - A liza D can etcion fo be leducted tom the ast blr vibe within 1s fact signing. eon on on po ane fna\ billtter he completed project accepted.” ‘ayment of progress bilings within 7 days from acceptance. — pectin Contract with Customers. Contrction Accounting 263 joey Builders. which uses he percentage-ol-complation (over time] method Jee ounting for income, estimated a 25% gross margin on the project. Ol ke end of the year, Joey Bulders had presented progress bilings 16 By Noa corresponding fo 50% completion. Althea accepted all the bill Myented. excep! one for 10% which was accepled on Jonuary 5 of next "ee. With the exception of the second to the last biling for 8% which was Yee Jonuary 3of next year, al accepted bilings were settled. In 20x6, Joey cticers realzed gross profi from the project the amount of: a. P7-500.000 c.P12.500000 bp. 10,000,000 d. 25000000 43, In 20x6, AJD Construction Co. was contracted to build Vilage Companys Brvate road network for P10 milion. The project was estimated to be Pompleled in hwo years, and the contract provided for ii) _ 5% mobilzotion fee [to be deducted from the last biling) payable within 15 doys after the signing of the contract, (2) 10% retention provision on all bilings, and 3) Payment of progress bilings within 10 days ftom acceptance. AID, which uses the percentage-of-completion method of accounting, estimated a 25% gross margin on the project. By the end of 20x6, AJD had. presented progress billings corresponding to 50% completion. All of the progress bilings presented in 20x6 were accepted, except the last one for 10% which was accepted on January 5, 20%7. With the exception of one bil for 8% which was due on January 7, 20x7, all of the bilings accepted in 20xé were settled, Payments made by Vilage Company in 20x amounted, to: 2. P33,800,000 <. P40,000,000 b. 38,500,000 45,000,000 54. On September 30, 20x6, Joja Co., Inc. was awarded the contract fo build a \igotoom hotel for 120 mon. Amerg ene, the pares agreed Yo The folowing: 1. Tenpercent mobitzation fee {deductible from inal bling’) payable \within ten days from the signing of the contract; 2. Retention of ten percent on all bilings (fo be paid with the final bling, upon completion and acceptance of the project): ond 3. Progress bilings are to be paid within 2 weeks upon acceptance. 8y the end of 20x6, the company had presented one progress billing, coresponding to 10% completion, which was evaluated and accepted by the clinton December 29, 20x6 for payment in January {over time) of Text year. In 20xé, assuming use of the percentage-of-compietion method of accounting, Jaja Co., Inc. received cash a total fee of: 9. 1,200,000 c.P12,000,000 b. 11'880000 13200000 264 Chaptey 4 55. Chicane Builders, In ulders, Inc, employs the cos+-1o-cost method in detemn,. the percentage of completion (overtime) for revenve recogeig fing ompany's records show the following information on 00. The completed project for a contract price of 5,000,000. 9 Fecentiy 20x 2x5 20% Costs incured to date 900,000 2550000 Pog. 100.000 "350,000. (50,000) Gr055 OF 55) a Complete the (1) esimated costs to complete the project at Dec 20K5, and (2) the actual cost incuned during the year Zé. PS. 9. {1} Pi 700000; (2) P2550000 b. (1) 1700000: (2) 2080000 & (1) P es0m0% 2) P20soom0 & fi) 170000; @} 2200000 56. AID Builders enteredinto.a contract to construct an office building and plaza gta contract price of P10,000,000. Gross profit is to be recognized using the percentage of completion method (over time) - output measures ot determined by estimates made by the architect. The data below summatae the activities on the construction for the yeas 20x4 through 20x6: ‘Actua! Estimated Percentage Complete Progress Yeor Cost Incued Cost to Complete Architect's Estimate filings Collections 20x4 P3,200,000 6,000,000 25% 3,300.00: 3,100,000 20x5 4,300,000 ‘1,600,000 75% 4,500,000 4,000,000 20x6 1,550,000 0 100% 2200,000° 200.000 ‘Compute the recognize gross profit - proportional cost approach for the yeor 20d 205 _ 20x 204 "205 _20x6 ‘a. P200,000; P675,000; P950,000 c, _P278.261; P741,758; P?50,000 bb. 278,261; 463,497; 208242 200000; 475,000; | 275,000 57. Using the same information in Number 54, what isthe recognized revenue ~ proporfional cost approach for the year: 20x 205 2x6 20d _20x5_ _ 2086, 2. 2500000; P 750000; PIOC00000 ¢. P3478261; PA 763497: P 1.758242 . P2.500,000; 5000000; P 2.500000 d. P3.478,261; e241 258; P10,000000 58. Using the same information in Number 54, what is he recognized revenue- actual cost approach for the year: Od 2005208 20k _ 2052008 10. F3,400.000; P4775000; 1,825,000 c. 3400.00; P5:000.000; 1.825000 bb. P2.500000; PS.000.000; P2.500000 d. P2.500,000; 4,775,000; P2,500000 2 Contract wth Customers: Contraction Accounting 265 one: .ame information in Number 56, compute the construct usrg ne slings) on December3i, 2a," n= orevctoninprowes ietet pores e.Pars000 oP oa 9 vey Construction Co. WOS engaged on October 1, 20:6 to construct a a, Lovely for a.contract price of P6 400.000 payablein S instalments. One-fith bthe contact price WOS 10 be poid upon completion of each quarter of oO Mork (as definedin detallby the termso the contact), the fina payment reg due within 10 days er acceptance of the completed project. py December 27, 20x6, 3/4 of the building had lbeen completed whereupon the ay Oing was made in accordance wit he tes of he conc! (ecsh had pen received on the previous bilings). During 20x, a total of P4200.000 had Been disbursed byy Lovely for costs incuredand, ct yearend. outstonding accounts eee for matetics Purchases fotled P000000, Lovely expected that on eae PT BOD G00 woudbe reqted to compet he prec! ling percentage-of-completion (over fime) method on an output boris HE oe rere Sab cee ert would be: . Ca P_ 950,000 cc. P1,050,000 5. 1.40000 1100000 it is - tion output 41. Using the same information is No. 58, percentage-of-complet matbod-aclual cess approach, the Ges pot fo be recognized in xs income statement would be: a. P 950,000 cc. P1.050000 b. 1,040,000 d. 1.100000 2.. Jenny Construction Co. has two projects forwihichitreported, as of December 31. 20x6, the following information: : In thousand pesos: rok A, Pro. B P4e00 PRED Contract price. 20x5: Costsincured 3,400 Percent completed .. 75% it Po 20x6: CostsinCUTED nnn riz ha Percent completed a Using percentage-of-completion (overtime) method strevenverecemion ‘085 profi on Project A to be recognized in 20x5 would be: 3.200000 cc. P400000 b. 300,000 d, 900000 266 63. Belgium Co. is constructing a tunnel for P8OO milion. Construct Beiguns new nena cos ar ESS to FOE incureain 2x9, F148miion in WAS and the remainder duting 20e4 Belge believes that it comoetec 25% of the tunnel during 20x6, although we May change bases on Witvre actly. Belaum Co. Uses PERS Te fant SccoUnIING ana TegarOS ts Cost RumdeIs os very UNCetaN (cos! recovelt meinoa/zero-prott aee'sach/Son in time). What amount of reve, should Belgium Co, recognize toy the year ended December 31, 20x87 °° &. ” Norevenveshous be recognizedunil he contracts completed F383 mation 2249 main P85 mation aog Wynn. inc. hes a contract to construct a large hotel for P12,000.000. the contract wos signed on Jenvary 2. 20x4 and it was expected that the hotel wou'd De Complete on December 31, 20x7. At the date the contract was signec. Wynn. Inc. cnticipated the costs of construction would total 11,000,000. At tne end of 20x5 the total cost estimate rose to P11,870,000, Gnd at the end of 20xé the total cost estimate rose fo P12.400,000. Due to certain crcumstences, Wynn. Inc. believes there are inherent hazards in the contract beyond the normal, recurring business risks. Wynn, Inc. expects to recover all its costs under the contract. Under these conditions, what ‘omount of less, if ony, should Wynn, Inc. recognize in each of the following yeas? 20s xs 2x5 ae c. pa70.000 400,000 c.—«PB7O,000©——PS30,000 bP © Paoo000 ds PO Wynn, Inc. has ¢ contract to construct a large hotel for P12,000,000. The contract was signed on January 2, 20x4 and it was expected that the hotel would be complete on December 31, 20x7. At the date the contract was sgneo, Wynn. Inc. anticipated the costs of construction would total ?11,000.000. AI the end of 20x5 the costs incurred were P3,490,000 and its estimate of fotc! contract costs rose to P11,870,000. During 20x6, ine Company incured costs of P4,020,000 and by the end of 20x6 the told Cost estimate rose 0 P12,400,000. Due to certain circumstances, Wyrtt Inc. believes there are inherent hazards in the contract beyond the nom tecurting business risks. Wynn, Inc. expects to recover allts costs under ‘Controct. Under these conditions, what amount of revenue should Wy" Inc. recognize in each of the following years? Bs 2x6 Bos, a. P3,490,000 4,020,000 cc. P3,528,222 3,890,323 b. PF oa P 400,000 d. —P8,380,000 P4,890,000 suion Contract with Customers: Contac nt Re eR enutruction Accounting ot a phalangium Company. a construction co a Mer ond. tf f0 BulG @ factory fora cient onan eae December bled is work os Iolows: fare Description ‘29 March 20x8 Contract to be awarded and s 35 April 20x8 Construction work to commence 37 November 20x8 Principal constuction werk fo be 30 December 20x8 Final completion of conten ee ommeted cordance with PFRS 15, the maximum e : ‘a, 20 March 20x8 to 30 December 20x8- b. 25 April 20x8 to 27 November 20x8 c. 25 April 20x8 to 30 December 20x8 d, 20 March 20x8 to 27 November 20x8 4g. the Tigridia Company has entered into « 5 yeor fixed price construction contract to build a factory. The contract valve is P2000 million and the estimated costs are P16.0 milion, At the end of the first year, Tigridia can estimate the outcome of the contract reliably. It has received cash payments o the valve of P8.6million, ‘and incurred costs of Pé.0 million. Atthe end of the first year, what amount should be recognised asrevenue in the financial statements, according to PFRS 15 a. P3.20 million ¢. P00 million b. P75 milion d. P8.60 milion 48. The Toucan Company has just completed a 4 year contract fo which the followi ing relate: Poo Labor and materials costs. von Machinery cost... 100 Initial design costs 2 Disposal proceeds of machinery What are the total contract costs, according to PFRS 15% 9. P2,350,000 c. P2430000 b. P1,900,000 d.P2,5001 x 268 @. The Pine Company i attempting to determine the totel re tex contract to build a factory for The As ster Ce tl B 1@ Aster Company, All ne oeeerrce win RS ch ees te Initially agreed fixed contract io price. Variation in the contract (see Note i) Penalty (see Note 2) Note I~ During the contract Aster changed the Conattioning systems. he changed specication hes Bessie ct new contract with the new price has not yet been. signed, alth But increase in the contract price of around F100,000ishighy pra eo" on ie 1 ai Note 2-A stro a Pine caused a delay for which Ct Contract was P30,000. This wes agreed by both pertien oY Me ain ‘At what amount! should the total contract revenue be stated? a. 770,000 <. P800,000 b. 900,000 d. 870,000 70. The Otsembor Company hi i So pany has he following amounts eating to consicton Item Pesos Costs incured 670,000 Recognized profit 60,000 250,000 - a Progress billings Under PERS 15, what is the amount of the contract asset? a. 480,000 ¢. P730,000 b. 360,000 di. P980,000 Lark Corp. has a contract to construct a 5,000,000 cruise ship at on estimated cost of P4,000,000. The company will begin construction of the cruise ship in early January 20x4 and expects to complete the project sometime in late 20%7. Lark Corp. has never constructed a cruise ship before, and the customer has never operated a cruise ship. Due to this and other citcumstances, Lark Corp. believes there are inherent hazards in the contract beyond the normal, recurring business risks. Lark Corp. expects 0 recover allits costs under the contract. During 20x4 and 20x5, the company has the following activity: ce 204 208 Costs to date P_ 980,000 P20400% Estimated costs fo complete 3920,000 130 000 ogres i x 0004 rogress bilings during the year ¥000.000 950.000 Cash collected during the year sau = Contact wh Customers: Cosracion couning—_* 269 ee scinoati “ cstaternent of financial postion al December 31, 20x5, what amount on ls ot ied related to the Construction in Process aceountd willbe 57000 costs in excess of bitings. 7 1,620,000 cosis in excess of biings. £40,000 bilings in excess of costs. 90,000 billings in excess of costs. ‘g construction contract, o contractor agrees to a fixed contract £2,000 to refurbish the Kitchen of aresidential lal. The contractor's pice €tfmate of contract costs on February 1,20x, ne date the contract is agreed. is P1.200. onfractor has a December 31 year-end. The contract price will be 'e contractor on completion of the refurbishment. under ceo he ct paid to the ne refurbishment was completed on July 31, 20xé at a cost of P1,250 fi. Tsual costs incurred under the contract as at July 31, 20x6 are P1250). tne contract revenue and contract costs for 2016 amounted to: Revenue Costs Revenue — Costs fon PReOR: (G0, ce P2000Ee | P1200 b. P 750 =P 0 d. P2000 P1250 Under a construction contract, a contractor agrees to a fixed contract piice of P2,000 to refurbish the kitchen of aresidential fiat. The contractor's intial estimate of contract costs on February 1, 20x5, the date the contract is agreed, is P1,200. The contractor has a June 30 year-end. The contract price willbe paid to the contractor on completion of the refurbishment. . sat June 30, 20x5 contract costs incurred for work performed to date are 800 and ihe contractor estimates that costs to complete the contract will be P400 (j. e., total contract costs will be P1,200).. The refurbishment was completed on July 31, 20x6 at a cost of P1,250 i.e. Qctual costs incurred under the contract as of July 31, 20xé6 are P1,250). The contractor determines the stage of completion of the contract by Calculating the proportion that contract costs incurred for work performed to date bear to the latest estimated total contract costs. 270. = Tt _ he contrat revenue and contact cso 205 om : unted to: Revenue Costs Revenue Cos P2000 F120 06g, pass Sate Bot lses be) id) eo ple 74. Using the same information in No. 73, 6 ompute the contract reve, Contract costs for 20xé amounted to: cod Revenue Costs Revenue Costs a. P 667 -P 450 © P2000 P1250 bP 217° Pp 450 a PO pO 78. Under.a construction contract, a contractor agrees to receiv Cen! fixed retum on is dec! contract costs rom tne eee BE Contractor'sintial estimate of contract costs on Jonuary 1, dose rere the contract is agreed, is P2,000 (all of which are considered aren le Therefore, expected revenue under he contac! is P2800, The eeuce' expected to last fwo years, ao The contractor has a December3! year-end, On December 31, 20x5 contract cosis of P1,045 have been incured and the contractor expects fotal contract costs to be P1,900 [all considered direct costs) On December 31, 20xé actual costs ore P2,000. However, only P1,800 meet the criteria in the contract to be considered direct costs when determining the 40 per cent fixed return. The contractor determines the stage of completion of the contract by calculating the proportion that contract costs incurred for work performed to date bear to the latest estimated fotal contract costs. The contract revenue and contract costs for 20x5 amounted fo: Revenue Coils Revenue Costs a. P2800 P. 2,000 cc. P1463 P1045, b. P1333 -P 800 d. P1337 P 95S 76. Using the same informatign in No. 75, the contract revenue and contract Costs for 20x6 amounted to: Revenue Costs Revenue Costs 9. P2520 P2000 c. P10s7 =P 755 b. P2800 Pp 955° d. P1057 =P 955 oe a sensi ss tor enters into 6 construction contact on Janvary 1, 2045. The 7. Aeonlrer lt Crees to a fixed price of P9,000 fo build bridge. The Contacte 68 eximate of contract coslsisPB0OD. The contest expects contactor ofp tee Yeor fo bull Ine xidge, trot tractors c December’! year-end. contr of the fist yeor of the contact (December 31, 235) the he estimate of otal cots he increared P8050 (cossincued

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