Chapter 10

Problem I
Number of performance obligations in the contract: 1.

The separate goods and services that Precision Equipment has agreed to provide (equipment, customized software
package, and consulting services) might be capable of being distinct, but they are not separately identifiable .In the
context of the contract, the goods and services are highly dependent on and interrelated with each other. The
contractor’s role is to integrate and customize them to create one automated assembly line.

Problem II
Number of performance obligations in the contract: 1.

Cabalen enters into a contract to construct a functioning swimming pool. The smaller components are not separately
identifiable, because each component is highly interrelated with each other, as Cabalen is obligated to integrate the
components into a combined final product for delivery to the customer.

Problem III
This contract qualifies for revenue recognition over time, because the seller is creating an asset that has no
alternative use to the seller, and the seller can receive payment for its progress even if the customer cancels the
contract.

Problem IV
A performance obligation is satisfied over time if at least one of the following three criteria is met:
1. The customer consumes the benefit of the seller’s work as it is performed,
2. The customer controls the asset as it is created, or
3. The seller is creating an asset that has no alternative use to the seller, and the seller can receive payment for
its progress even if the customer cancels the contract.

Under EE construction agreement with AJD, if for any reason

EE can’t complete construction, AJD would own the partially completed building. Therefore, criterion 2 is satisfied,
and revenue should be recognized as the building is being constructed.

Problem V
The expected value would be calculated as follows:
Possible Amounts Probabilities Expected Amounts
P35,000 (P25,000 fixed fee + P10,000 bonus) × 50% = P17,500
P25,000 (P25,000 fixed fee + P0 bonus) × 50% = 12,500
Expected contract price at inception P30,000

Or, alternatively:
P25,000 + (P10,000×50%) = P30,000
Problem VI
1. Input Measure - Percentage of Completion Method (Cost to Cost Method)
2008:
Contract price P 1,800,000
Actual costs to date P 450,000
Estimated costs to complete 1,200,000
Total estimated project costs 1,650,000
Estimated total gross profit 150,000
Percentage of completion:
P450,000 / P,1650,000 27.27%
Gross profit recognized P 40,905

2009: P 1,800,000
Contract price
Costs incurred:
2008 P 450,00
2009 1,100,000
Total cost 1,550,000
Total gross profit 250,000
Recognized in 2008 40,905
Recognized in 2009 P 209,095
2. Input Measure - Cost Recovery Method
2008: (all costs not yet recovered) P -0-
2009:
Contract price 1,800,00
Costs incurred: 2008 P 450,000
2009 1,100,000
Total cost 1,550,000
Total gross profit P 250,000

Problem VII
1. Input Measure - Percentage of Completion Method (Cost to cost Method)
Years Gross Profit (or Loss) Supporting computations
recognized
2008 P 6 million (P108 – 90) x (P30/P90) = P6 million
2009 ( P18 million) Total loss is (P108 –120) = (P12 million)
To date, P6 million was recorded: therefore,
(P12 million) – P6 million = (P18 million)
in 2009
2010 P 10 million Total loss is P 108 – 110) = (P2 million)
To date, (P 12 million was recorded:
therefore, ( P2 million) – (P12 million) =
P10 million in 2010

2. Input Measure - Cost Recovery Method

Years Gross Profit (or Loss) Supporting computations
2008 P -0- ( P108 – 90) = P18 anticipated gross profit,
so no need to recognized a gross loss
2009 (P 12 million) Total loss is ( P108 – 120) = (12 million)
2010 P 10 million Total loss is (P108- 110) – ( P2 million)
To date, ( P12 million was recorded:
therefore, ( P2 million) – ( P12 million) =
P10 million in 2010

Problem VIII
1. Journal Entries
a. Input Measure – Percentage of completion – (cost-to-cost method)
The following analysis is to determine the percentage of completion:
20x3 20x4 20x5
Contract price:
Initial amount of contract…………... P528,000 P528,000 P528,000
Variation……………………………….. _______- __12,000 __12,000
Total contract price…………………….. P528,000 P540,000 P540,000
Costs incurred each year……………… P 126,048 *P244,032 P121,920
Add: Costs incurred in prior years……. _______- _126,048 _370,080
Actual costs incurred to date (1)…..… P126,048 *P370,080 P492,000
Add: Estimated costs to complete….. _358,752 _121,920 _______-
Total estimated costs (3)……..………… P484,800 P492,000 P492,000
Estimated gross profit…………………… P 43,200 P 48,000 P 48,000
Percentage of completion (1) / (3) 26% **74% 100%
* including the P7,200 additional costs in 20x4.
** it should be noted that the percentage of completion for 20x4 is calculated by deducting the P6,000 of materials held for the following
period from the costs incurred up to that year end, i. e., P370,080 – P6,000 = P364,080, P364,080 / P492,000 = 74%.

The revenue, expenses (costs) and profit will be recognized in profit or loss as follows:
 Recognized in Recognized in
20x3 To date prior years current year
Revenue (P528,000 x 26%) P 137,280 - P 137,280
Costs/Expenses (P484,800 x 26%) 126,048 - 126,048
Gross Profit (P43,200 x 26%) P 11,232 - P 11,232

Recognized in Recognized in
20x4 To date prior years current year
Revenue (P540,000 x 74%) P 399,600 P 137,280 P 262,320
Costs/Expenses (P492,000 x 74%) _364,080 _126,048 238,032
Gross Profit (P48,000 x 74%) P 35,520 P 11,232 P 24,288

Recognized in Recognized in
20x5 To date prior years current year
Revenue (P540,000 x 100%) P 540,000 P 399,600 P 140,400
Costs/Expenses (P492,000 x 100%) _492,000 _364,080 _127,920
Gross Profit (P48,000 x 100%) P 48,000 P 35,520 P 12,480

Alternatively, the gross profit recognized each year may also be computed as follows:
20x3 20x4 20x5
Contract price:
Initial amount of contract…………....... P528,000 P528,000 P528,000
Variation…………………………………… _______- __12,000 12,000
Total contract price………………………… P528,000 P540,000 P540,000
Costs incurred each year…………………. P126,048 P240,032 P121,920
Add: Costs incurred in prior years……….. _______- _126,048 _370,080
Actual costs incurred to date (1)…..……. P126,048 P370,080 P492,000
Add: Estimated costs to complete……… _358,752 _121,920 _______-
Total estimated costs (3)……..……………. P484,800 P492,000 P492,000
Estimated gross profit……………………… P 43,200 P 48,000 P 48,000
Percentage of completion (1) / (3)……... ____26% ____74% ___100%
Gross profit to date…………………………. P 11,232 P 35,520 P 48,000
Less: Gross profit in prior years……………. _______- ___11,232 __35,520
Gross profit in current year -% of completion P 11,232 P 24,288 P 12,480
Gross profit in current year –cost recovery method P 0 P 0 P 48,000

Following are the entries for the years 20x3 to 20x5:

Percentage of Completion Method
20x3 20x4 20x5
1. To record costs incurred:
Construction In Progress*………...... 126,048 238,032 127,920
Materials Inventory………………….. 6,000 6,000
Cash, payables, etc…………….. 126,048 244,032 121,920

2. To record progress billings:

Accounts receivable……………….. 144,000 240,000 156,000
Progress billings*.…………………. 144,000 240,000 156,000

3. To record collections:
Cash…………………………………..... 120,000 228,000 192,000
Accounts receivable…………… 120,000 228,000 192,000

4. To recognize Revenue, Costs

and Gross Profit:
Construction Expenses……………… 126,048 238,032 127,920
Construction in Progress*..……….... 11,232 24,288 12,480
Revenue from Construction...... 137,280 262,320 140,400

5. To close Construction In Progress**

 and Progress Billings account:
Progress billings……………………… 540,000
Construction In Progress………. 540,000
* The term “Contract account” may alternatively be used.
** If “Contract account” is used then no entry is required for No. 5.

b. Input Measure – Cost Recovery Method

The following table shows the data needed for further analysis:
20x3 20x4 20x5
Contract price:
Initial amount of contract…………... P528,000 P528,000 P528,000
Variation……………………………….. _______- __12,000 __12,000
Total contract price…………………….. P528,000 P540,000 P540,000
Costs incurred each year……………… P126,048 P244,032 P121,920
Add: Costs incurred in prior years……. _______- _126,048 _370,080
Actual costs incurred to date……....… P126,048 P370,080 P492,000
Add: Estimated costs to complete….. ____ _? ____ _? _______-
Total estimated costs ….……..………… P ? P ? P492,000

The revenue, expenses (costs) and profit will be recognized in profit or loss as follows:
Recognized in Recognized in
20x3 To date prior years current year
Revenue* P 126,048 - P 126,048
Costs/Expenses 126,048 - 126,048
Gross Profit P 0 - P 0
* equivalent to costs incurred

Recognized in Recognized in
20x4 To date prior years current year
Revenue* P 364,080 P 126,048 P 238,032
Costs/Expenses _364,080 126,048 238,032
Gross Profit P 0 P 0 P 0
* equivalent to costs incurred

Recognized in Recognized in
20x5 To date prior years current year
Revenue (P540,000 x 100%) P 540,000 P 364,080 P 175,200
Costs/Expenses (P492,000 x 100%) _492,000 364,080 127,920
Gross Profit (P48,000 x 100%) P 48,000 P 0 P 48,000

Alternatively, the gross profit recognized each year may also be computed as follows:
20x3 20x4 20x5
Contract price:
Initial amount of contract…………....... P528,000 P528,000 P528,000
Variation…………………………………… _______- __12,000 12,000
Total contract price………………………… P528,000 P540,000 P540,000
Costs incurred each year…………………. P 126,048 P244,032 P 121,920
Add: Costs incurred in prior years……….. _______- _126,048 _370,080
Actual costs incurred to date ……...……. P 126,048 P370,080 P492,000
Add: Estimated costs to complete……… ____ _? ____ _? _______-
Total estimated costs …….…..……………. P ? P ? P492,000
Estimated gross profit………………………. P 0 P 0 P 48,000
Percentage of completion……………….. _ -___ _ -___ ___100%
Gross profit to date…………………………. P 0 P 0 P 48,000
Less: Gross profit in prior years……………. _______- _______- __ 0
Gross profit in current year………………... P 0 P 0 P 48,000

Following are the entries for the years 20x3 to 20x5:

 20x3 20x4 20x5
1. To record costs incurred:
Construction In Progress*………...... 126,048 238,032 127,920
Materials Inventory………………….. 6,000 6,000
Cash, payables, etc…………….. 126,048 244,032 121,920

2. To record progress billings:

Accounts receivable……………….. 144,000 240,000 156,000
Progress billings*.…………………. 144,000 240,000 156,000

3. To record collections:
Cash…………………………………..... 120,000 228,000 192,000
Accounts receivable…………… 120,000 228,000 192,000

4. To recognize Revenue, Costs

and Gross Profit:
Construction Expenses……………… 126,480 238,032 127,920
Construction in Progress*..……….... 48,000
Revenue from Construction...... 126,480 238,032 175,920

5. To close Construction In Progress**

and Progress Billings account:
Progress billings……………………… 540,000
Construction In Progress………. 540,000
* The term “Contract account” may alternatively be used.
** If “Contract account” is used then no entry is required for No. 5.

2. Contract Asset/Contract Liability

a. Input Measure - Percentage of Completion Method
Current Asset:
20x3 20x4 20x5
Accounts receivable………………………. P 24,000 P 36,000 P -
Other receivables:
Construction In Progress………………… P399,600
Less: Progress billings……………………. _384,000
Contract asset P 15,600
Raw materials Inventory…………………… P 6,000

Current Liability:
Payables (“Payments on Account”)
Progress billings……………………………… P144,000
Less: Construction In Progress……………. _137,280
Contract Liability P 6,720

Construction In Progress Progress Billings

20x3 CI 126,048 144,000 20x3

Pr 11,232

end of x3 137,280 144,000 end of x3

20x4 CI 238,032 240,000 20x4
Pr 24,288

end of x4 399,600 384,000 end of x4

20x5 CI 127,920 156,000 20x5
Pr 12,480
 540,000 540,000 540,000 540,000

where: CI - cost incurred each year

Pr - profit

b. Input Measure – Cost Recovery Method

Current Asset:
20x3 20x4 20x5
Accounts receivable………………………. P 24,000 P 36,000 P -
Raw materials Inventory…………………… P 6,000

Current Liability:
Payables (“Payments on Account”)
Progress billings……………………………… P 137,280 P384,000
Less: Construction In Progress……………. _144,000 _364,080
Contract liability P 6,720 P 19,920
Construction In Progress Progress Billings

20x3 CI 126,048 144,000 20x3

Pr 0

end of x3 126,048 144,000 end of x3

20x4 CI 238,032 240,000 20x4
Pr 0

end of x4 364,080 384,000 end of x4

20x5 CI 127,920 156,000 20x5
Pr 48,000

540,000 540,000 540,000 540,000

where: CI - cost incurred each year

Pr - profit

3. Gross Profit
a. Input Measure - Percentage of Completion Method (refer to requirement 1 for detailed
computation)
20x3 20x4 20x5
Revenue……………………………………… P 137,280 P 262,320 P 140,400
Less: Costs / Expenses……………………... _126,048 _238,032 _127,920
Gross Profit……………………………………. P 11,232 P 24,288 P 12,480

b. Input Measure – Cost Recovery Method (refer to requirement 1 for detailed computation)
20x3 20x4 20x5
Revenue……………………………………… P 126,048 P 238,032 P 175,920
Less: Costs / Expenses……………………... _126,048 _238,032 _127,920
Gross Profit……………………………………. P 0 P 0 P 48,000

Problem IX
1. Anticipated/Gross Loss
a. Input Measure – Percentage of Completion (Cost-to-Cost Method)
 20x4:
Contract price P2,500,000
Actual cost to date P1,500,000
Estimated costs to complete 1,200,000
Total estimated project costs 2,700,000
Estimated loss, recognized in 20x4 P (200,000)

20x5:
a. Contract price P 2,500,000 Input
Costs incurred: In 20x4 P1,500,000
In 20x4 1,300,000
Total cost 2,800,000
Total loss P (300,000)
Recognized in 20x4 (200,000)
Recognized in 20x5 P (100,000)
Measure – Cost Recovery Method
Loss in 20x4 P( 200,000)
Loss in 20x5 P (100,000)

2. Journal Entries
a. Input Measure – Percentage of Completion (Cost-to-Cost Method)

20x4:
Construction in progress 1,500,000
Various credits 1,500,000

Accounts receivable 1,200,000

Billings on construction contract 1,200,000

Cash 1,000,000
Accounts receivable 1,000,000

Cost of construction 1,588,889

Construction in progress (loss) 200,000
Revenue from long-term contracts* 1,388,889
20x5:
Construction in progress 1,300,000
Various credits 1,300,000

Accounts receivable 1,300,000

Billings on construction contract 1,300,000

Cash 1,500,000
Accounts receivable 1,500,000

Cost of construction 1,211,111

Construction in progress (loss) 100,000
Revenue from long-term contracts** 1,111,111

Billings on construction contract 2,500,000

Construction in progress 2,500,000
*P2,500,000
(P1,500,000/P2,700,000)
** P2,500,000 1,388,889
Problem X
Item to compute Answer
Total revenue recognized during 2009 (w): P50 million
CIP contains cost + gross profit = revenue, so w = P50 P 15 million
Gross profit recognized during 2009 (x): P50 – P35 = P15
Billings on construction (y) : P14 + P 46 = P60 P60million
Net billings in excess of construction in progress (z): Billings of P60 – CIP of P50 P10 million
Calculate the percentage of PAC that was completed during 2009:
50/150 = 33.33% 333.33%

Problem XI
Item to compute (in Millions) Answer
1. Cash collected by KP on Cincy One during 20x5. (P75 billings – P10 A/R) P65 million
2. Actual costs incurred by KP on Cincy One during 2009 (P66 CIP – P22 gross P44 million
pofit)
3. At 12/31/20x5, the estimated remaining costs to complete Cincy One (44/{44 P156 million
+ x})(300 – {44 + x}) = 22; x = 156
4. The percentage of Cincy One that wa completed during 20x5 100 x (44/ {44 + 22%
156})

Problem XII
1.
Progress billings on construction contract P562,000
Less accounts receivable 150,500
Cash collected in 20x4 P411,500

2.
Gross profit from construction contract + Construction in progress = Revenue for 20x4
P301,000 + P602,000 = P903,000
P903,000/P7,525,000 = 12% Percentage completed in 20x4
P301,000/.12 = P2,508,333 Estimated income on construction contract

Problem XIII
1. Percentage of Completion Method (Cost-to-cost Approach)
20x4 20x5 20x6
Contract price ................... P250,000 P250,000 P250,000
Current year costs ............... 110,000 120,000 15,000
Costs to date .................... 110,000 230,000 245,000
Estimated cost to complete ....... 100,000 20,000 0
Estimated total cost ............. 210,000 245,000 240,000
Estimated total gross profit ..... 40,000 5,000 5,000
Percent complete ................. 52% 94% 100%
Revenue to date .................. P130,000 P230,000 P250,000

To Date Previous Current

at Dec. 31 Years Year
20x4: Revenue P130,000 P130,000
Costs (110/210 x 210) 110,000 110,000
Gross profit P 20,000 P 20,000

20x5: Revenue P235,000 P130,000 P105,000

Costs (230/245 x 245) 230,000 110,000 120,000
Gross profit (loss) P 5,000 P 20,000 P(15,000)
 20x6: Revenue P250,000 P235,000 P 15,000
Costs 245,000 230,000 15,000
Gross profit P 5,000 P 5,000 P 0

20x4 20x5 20x6

1. Revenue recognized during
the year P130,000 P100,000 P15,000
2. Gross profit recognized during
the year 20,000 (15,000) 0
3. Balance in the construction in
progress account at Dec. 31 . 130,000 235,000 0
4. Balance in the progress
billings account at Dec. 31 . 125,000 250,000 0
5. Net (3-4) or (4-3) – due from (due to) 5,000 (15,000) 0

2. Cost Recovery Method

20x4 20x5 20x6
1. Revenue recognized during
the year P110,000 P120,000 P20,000
2. Gross profit recognized during
the year 0 0 5,000
3. Balance in the construction in
progress account at Dec. 31 . 110,000 230,000 0
4. Balance in the progress
billings account at Dec. 31 . 125,000 250,000 0
5. Net (3-4) or (4-3) (15,000) (20,000) 0

Problem XIV
1. Percentage of Completion Method (Cost-to-cost Approach)

20x4 20x5 20x6

Contract price P250,000 P250,000 P250,000
Current year costs 150,000 100,000 15,000
Costs to date 150,000 250,000 265,000
Estimated cost to complete 90,000 20,000 0
Estimated total cost 240,000 270,000 265,000
Estimated total gross profit 10,000 (20,000) (15,000)
Percent complete 63% 93% 100%

Revenue to date P157,500 P232,500 P250,000

To Date Previous Current

at Dec. 31 Years Year
20x4: Revenue ............ P157,500 P157,500
Costs (150/240 x 240) 150,000 150,000
Gross profit ............ P 7,500 P 7,500

20x5: Revenue ............ P232,500 P157,500 P 75,000

Costs ............ 252,500 150,000 102,500
Gross profit (loss) ............ P(20,000) P 7,500 P(27,500)

20x6: Revenue ............ P250,000 P232,500 P 17,500

Costs ............ 265,000 252,500 12,500
Gross profit (loss) ............ P(15,000) $(20,000) P 5,000
 20x4 20x5 20x6
1. Construction costs (expense)
recognized during the year P150,000 P102,500 P12,500
2. Gross profit recognized during
the year 7,500 (27,500) 5,000
3. Balance in the construction in
progress account at Dec. 31
(after closing entries) 157,500 230,000* 0
4. Balance in the progress
billings account at Dec. 31 . 110,000 230,000 0
5. NNet (3-4) or (4-3) – due from (due to) 47,500 0 0

Balance in accounts receivable

at Dec. 31 (after closing entries) 10,000 10,000 0
*P150,000 + 7,500 + 157,500 + 100,000 costs incurred during the year – 27,500 loss

2. Cost Recovery Method

20x4 20x5 20x6
1. Construction costs (expense)
recognized during the year P150,000 P 80,000* P20,000**
2. Gross profit recognized during
the year 0 (20,000) 5,000
3. Balance in the construction in
progress account at Dec. 31
(after closing entries) 150,000 ***230,000 0
4. Balance in the progress
billings account at Dec. 31 . 110,000 230,000 0
5. NNet (3-4) or (4-3) – due from (due to) 40,000 0 0
Balance in accounts receivable
at Dec. 31 (after closing entries) 10,000 10,000 0
*P100,000 costs incurred – P20,000 estimated loss = P80,000, revenue – 20x5
**P250,000 – P150,000, revenue – 20x4 – P80,000, revenue – 20x5
***P150,000 + P100,000 – P20,000
Multiple Choice Problems
1. a
A performance obligation is satisfied over time if at least one of the following three criteria is met:
 The customer consumes the benefit of the seller’s work as it is performed,
 The customer controls the asset as it is created, or
 The seller is creating an asset that has no alternative use to the seller, and the seller can receive
payment for its progress even if the customer cancels the contract.

Under DJD construction agreement with Hotel Dian, if for any reason
DJD can’t complete construction, Hotel Dian would own the partially completed building. Therefore, criterion
2 is satisfied, and revenue should be recognized as the building is being constructed.

2. b - Number of performance obligations in the contract: 1.

Silver enters into a contract to design and construct a specific building. Each smaller component of the
construction contract, though capable of being distinct, is not separately identifiable because each component is
highly interrelated with each other, and providing them to the customer requires the seller to integrate the
components into a combined item (garage).

3. b – refer to discussion in No. 2.

4. a – [(P850,000 + P50,000)  .65 + (P900,000 – P10,000)  .25 + (P890,000 – P10,000  .05 + (P880,000 –
P10,000)  .05) = P895,000.

Correction: ….After August 15, 20x4 instead of 20x5

5. b -
The transaction price should include management’s estimate of the amount of consideration to which the entity
will be entitled. Given the multiple outcomes and probabilities available based on prior experience, the
probability-weighted method is the most predictive approach for estimating the variable consideration in this
situation:
Completion Date Probability Expected Value
August 1 70% chance of P2,070,000 = P1,449,000
August 8 20% chance of P1,980,000 = 396,000
August 15 5% chance of P1,890,000 = 94,500
After August 15 5% chance of P1,800,000 = 90,000
P2,029,500

6. c - In this situation, Nair uses the most likely amount as the estimate – P2,070,000.

7. a - When there is limited information with which to develop a reliable estimate of completion, then no revenue
related to the incentive should be recognized until the uncertainty is resolved. Therefore, no revenue is
recognized until the completion of the contract.

8. a
Costs incurred each year
(2.5 M + 2.0 M + 1 M* + .5 M) P 6M
Add: Cost incurred in prior years 0
Costs incurred to date P 6M
Add: Estimated cost to complete
Total estimated costs P 18 M
Percentage of completion 6 M / 18M
Administrative cost as long as reimbursable is included in the construction costs.
Marketing costs are considered as expenses.
Depreciation of idle equipment is charged to expenses.

9. c – take note the term “assessment of the value of the work done” and “performance completed” indicate we have to use
the survey of work performed which is an indication of Output Measures/Sales Basis – modified version since it was
based on the total estimated costs.
Cost incurred each year (since last assessment)……………….. P 200,000
Add: Cost incurred in prior year (to date last assessment) 1,800,000
Costs incurred to date…………………………….. P2,000,000
Add: Estimated costs to complete……………… 1,200,000
Total estimated costs………………………………. P3,200,000
Multiplied by: percentage of completion (2,520*/4,200) _____60%
Costs to profit or loss P1,920,000

10. d –
Cash received P 145,000
Less: Performance completed 125,000
Liabilitiy P 20,000
11. d -
Dr Receivable 1,000,000
Cr Contract liability 20,000
Cr Revenue recognized in year (35% x P2.8m) 980,000

PFRS 15 only allows the recognition of the revenue insofar as the performance obligation is
satisfied. As a higher amount has been billed to the customer, the balance is a liability that
represents a payment promise received from a customer before a performance obligation (or part
of) has been delivered.

P 1,000,000 is a receivable rather than a contract asset because it is an unconditional right to

receive compensation.

12. b – point-in-time/cost recovery method is used.

At the end of 20x4 the contractor must recognized only to the extent of recoverable contract costs incurred (i.e., P5,000
contract revenue and P5,000 construction costs/expenses).

13. b
P7,200,000
——————————— x (P15,000,000 – P12,000,000) = P1,800,000.
P7,200,000 + $4,800,000

14. c
P1,170,000
—————- x (P3,300,000 – P1,950,000) = P810,000
P1,950,000

(P3,300,000 – P2,010,000) – P810,000 = P480,000.

15. d
Under the percentage of completion method, the Construction-In-Progress account is used for cost incurred
during the year and any realized gross profit (loss). The following T-account is prepared:
Construction-In-Progress
CI in 2004 210,000
RGP in 20x4 (?) 34,000
End of 20x4 244,000
CI in 20x5 384,000
RGP in 20x5 (?) 100,000

End of 20x5 728,000

16. b P1,200,000
————— x (P7,200,000 – P4,800,000) = P600,000.
P4,800,000

17. c P7,200,000 – P4,875,000 =P2,325,000.

18. a
20x4
Contract Price P4,800,000
x: Percentage-of-completion _______75%
Recognized Revenue to date P3,600,000
Less: Costs incurred to date P3,400,000
Gross Profit to date P 200,000
Less: GP in prior year _______-0-
Gross profit in current year P 200,000
19. a P3,600,000
————— x (P8,400,000 – P6,000,000) = P1,440,000.
P6,000,000

20. b P8,400,000 – P5,600,000 = P2,800,000.

21. a [P1,950,000 ÷ (P1,950,000 + P1,300,000)] × P2,250,000 = P1,350,000

(P5,500,000 – P3,350,000) – P1,350,000 = P800,000.

22. Cost Recovery Method - c - P5,500,000 – P3,350,000 = P2,150,000.

23. a - Gross profit is recognized in the year of sale, 20x4; therefore, in 20x6 no gross profit should be realized.

24. c P600,000
—————————— x (P1,500,000 – P1,000,000) = P300,000
P600,000 + P400,000

(P1,500,000 – P1,050,000) – P300,000 = P150,000.

25. a
Contract Price P6,000,000
Less: Total Estimated Costs
Costs Incurred-1/10/x4 to 12/31/x5 P3,600,000
Add: Estimated costs to complete 1,200,000 4,800,000
Less: Costs incurred to date P1,200,000
Multiplied by: % of completion ___3.6/4.8
Gross Profit to date P 900,000
Less: GP in prior year (given) ___600,000
Gross profit in current year P 300,000

26. b
20x4: Cost to date – P7,500,000 x 20% P1,500,000
20x5: Cost to date – P8,000,000 x 60% 4,800,000
Cost incurred during 20x5 P3,300,000

27. b = (P25,000,000 × .60) – (P22,500,000 × .25) = P9,375,000.

28. b
Costs Incurred 50,000
Contract price………………………………………. P260,000
Cost incurred each year………………………….. P 50,000
Add: Cost incurred in prior year…………………. -0-
Costs incurred to date…………………………….. P 50,000
Add: Estimated costs to complete……………… 150,000
Total estimated costs………………………………. P200,000
Estimated gross profit (loss)………….……………. P60,000)
Multiplied by: percentage of completion……….. __50/200 15,000
Construction In Progress account 65,000
Less: Progress billings 30,000
Construction In Progress account (net) or Due from customers 35,000

29. d - P2,040,000 – P980,000 = P1,060,000 (revenue limited to costs incurred since cost-recovery method must be
used).
30. a - P2,040,000 – (P1,000,000 + P1,000,000) = P40,000.
31. c - (P1,000,000 + P1,000,000) – (P648,000 + P1,280,000) = P72,000.
32. d
33. d
Recognized gross profit (loss) to date………….. P( 100,000)
Less: Recognized gross profit in prior years……. ____20,000
Recognized gross profit each year…………….. P (120,000)

34. b = P5,600,000 – (P2,560,000 + P3,280,000) = –P240,000.

35. c
Prior year Current year
Contract price………………………………………. P7,000,000 P7,000,000
Cost incurred each year…………………………..
Add: Cost incurred in prior year………………….
Costs incurred to date…………………………….. P5,000,000
Add: Estimated costs to complete……………… 2,800,000
Total estimated costs………………………………. P7,800,000
Estimated gross profit (loss)………….……………. (P 800,000)
Multiplied by: percentage of completion……….. _____100%
Recognized gross profit (loss) to date………….. P600,000 (P 800,000)
Less: Recognized gross profit in prior years……. ___600,000
Recognized gross profit each year…………….. (P1,400,000)

36. c -
Revenue P32,000,000
Cost incurred each year…………………………..
Add: Cost incurred in prior year………………….
Costs incurred to date…………………………….. P15,000,000
Add: Estimated costs to complete……………… 10,000,000
Total estimated costs………………………………. P25,000,000
Estimated gross profit (loss)………….……………. P 7,000,000

37. b -
Sales Basis (Output) Cost Basis (Input)
Work certified to date P18,000,000
Costs incurred to date P15,000,000
Expected sales value P32,000,000
Total estimated costs (refer to No. 36) P25,000,000
Percentage of completion **56.25% ***60%
Correction: Cost taken in earlier periods should be P9,500,000* instead of P950,000.
38. b -
Output Method/Sales Basis
Recognized in Recognized in
20x8 To date prior years current year
Revenue (P32,000,000 x .5625**) P18,000,000 P12,000,000 P 6,000,000
Costs (P25,000,000 x .5625**) 14,062,500 __*9,500,000 __4,562,500
Gross Profit (P7,000,000 x .5625**) P 3,937,500 P 2,500,000 P 1,437,500

Correction: Cost taken in earlier periods should be P9,500,000* instead of P950,000.

39. a -
Input Method/Cost Basis
Recognized in Recognized in
20x8 To date prior years current year
Revenue (P32,000,000 x .60***) P19,200,000 P12,000,000 P 7,200,000
Costs (P25,000,000 x .60***) 15,000,000 __*9,500,000 __5,500,000
Gross Profit (P7,000,000 x .60***) P 4,200,000 P 2,500,000 P 1,700,000
40. a-
J K L
Contract price (CP) – (2) P 416,000 P 684,000 P 300,000
Actual costs incurred to date …..… P 320,000 P 540,000 P 20,000
Add: Estimated costs to complete….. ___40,000 ___90,000 _220,000
Total estimated costs ……..………… P 360,000 P 630,000 P240,000
Estimated gross profit…………………… P 56,000 P 54,000 P 60,000
Work certified to date (1) P 312,000 P456,000 *P -
Divided by: Work certified to date/CP P 416,000 P684,000 P 300,000
Percentage of completion (1) / (2) 75% 66.67% Nothing certified
Cost Recovery
Method Used Sales Basis (Output) Method
*No work certified
to date

42. a
J K L
Contract Price P 416,000 P 684,000 P 300,000
x: % completed _____75% __66.67% _______-0-
Revenue P 312,000 P 456,000 *P 20,000
Costs (TEC x % of C) P 270,000 P 420,000 P 20,000
Estimated gross profit…………………… P 42,000 P 36,000 P 0

Assumed to be gross profit, since the only amount available in the choices
41. a -
J K L
Revenue P 416,000 P 684,000 P 300,000
x: % completed _____75% __66.67% _______-0-
Revenue P 312,000 P 456,000 *P 20,000
Costs (TEC x % of C) P 270,000 P 630,000 P 240,000
Estimated gross profit…………………… P 42,000 P 54,000 P 60,000
Work certified to date (1) P 312,000 P456,000 *P -
Divided by: Work certified to date/CP P 416,000 P684,000 P 300,000
Percentage of completion (1) / (2) 75% 66.67%
None, since there is
no work of costs
certified to date

42. a -
J K L
Contract Price P 416,000 P 684,000 P 300,000
x: % completed _____75% __66.67% _______-0-
Revenue P 312,000 P 456,000 *P 20,000
Costs (TEC x % of C) P 270,000 P 420,000 P 20,000
Estimated gross profit…………………… P 42,000 P 36,000 P 0

43. a -
Actual costs incurred to date …..… P 320,000 P 540,000 P 20,000
Profit / Loss to date ___42,000 ___36,000 ________0
Total P 362,000 P 576,000 P 20,000
Less: Billings to date 250,000 480,000 _____-0-
Inventory / Work-in-process P 112,000 P 96,000 P 20,000

44. c P7,440,000  .30 = P2,232,000.

45. d (P7,200,000  .75) – (P7,100,000  .30) = P3,270,000.

46. b (P7,440,000  .75) – (P620,000  8) = P620,000 debit.

47. c P7,440,000  .25 = P1,860,000
P7,500,000 – (P7,200,000  .75) = P2,100,000.

48. b (P9,000,000 – P8,250,000)  (P3,795,000 ÷ P8,250,000) = P345,000.

49. c P3,795,000 + P345,000 = P4,140,000.

50. d P3,500,000 –P1,350,000 – P1,525,000 = P625,000.

51. b P240,000 – P100,000 = P140,000.

52. d P300,000 – P60,000 = P240,000

P240,000
————————— x (P2,400,000 – Total estimated cost) = P60,000
Total estimated cost
Total estimated cost = P1,920,000
P2,400,000 – P1,920,000 =P480,000.

53. c (P6,325,000 ÷ P13,750,000) × P1,250,000 = P575,000.

54. a (P6,325,000 ÷P13,750,000) × P1,250,000 = P575,000.

P6,325,000 + P575,000 = P6,900.000.
55. d - P85M costs incurred in 20x6 = revenue recognized in 20x6. Under the costs recovery (zero-profit
approach/point-in-time) of construction accounting, revenue is recognized up to the extent of costs incurred as
long as it is probable will be recoverable.

56. b - 20x5: P12,000,000 > P11,870,000, No loss;

20x6: P12,000,000 – P12,400,000 = P400,000 loss.
57. a - Revenue recognized to the extent of costs incurred

58. c P3,200,000 – P2,150,000 = P1,050,000.

59. c P1,500,000 – P820,000 = P680,000.

60. a
Under PFRS, the excess of Construction In Progress amounting to P2,100,000 (P2,250,000 – P150,000, loss) –
P1,900,000, billings = P200,000 is classified as contract asset.

61. a
20x4 20x5
Contract price P 9,600,000 P10,080,000
Costs incurred to date P 4,920,000 P 8,640,000
Add: Estimated cost to complete 4,920,000 2,160,000
Total estimated costs P 9,840,000 P 10,800,000
Estimated Gross Profit (loss) P(240,000) P (720,000)
Multiply by: % of completion 100% 100%
Recognized Gross Profit (Loss) to date P (240,000) P (720,000)
Less: Gross Profit (Loss) in prior year _________ (240,000)
Recognized Gross Profit (Loss) in current year P (240,000) P (480,000)
% of Completion / Cost Recovery Method:
Construction in Progress Progress Billings

CI 4,920,000 240,000 loss 5,280,000

4,680,000 5,280,000
 CI 3,720,000 480,000 loss 3,420,000

7,920,000 8,700,000
Contract liabilities
P780,000

Note: If there is an anticipated loss, the Construction-in-Progress for both methods will exactly be the same
in the year the loss was incurred.
62. d
Percentage of Completion: Project 6 Project 7 Project 8
Contract price………………………….. P500,000 P700,000 P250,000
Cost incurred each year………………. P375,000 P100,000 P100,000
Add: Cost incurred in prior year……… _________ ________ ________
Costs incurred to date………………… P375,000 P100,000 P100,000
Add: Estimated costs to compute……. ________ 400,000 100,000
Total estimated costs…………………. P375,000 P500,000 P200,000
Estimated gross profit………………… P125,000 P200,000 P 50,000
Multiply by: percentage of completion. 100% 20% 50%
Recognized gross profit to date……… P125,000 P 40,000 P 25,000
Less: Recognized gross profit in prior years _________ _________ _________
Recognized gross profit each year…. P125,000 P 40,000 P 25,000
Cost Recovery Method of Construction Accounting:
Project 6 Project 7 Project 8
Recognized Revenue………..……….. P500,000* P100,000 P100,000
Less: Costs of long-term construction
contract…………………………….. 375,000 100,000 100,000
Recognized gross profit each year…. P125,000 P 0 P 0
* Since the contract is completed then the full amount of P500,000 contract price should be recognized as revenue.
Percentage of Completion Cost Recovery Method of Construction
Construction in Progress Construction in Progress
Pr. 6 - Cl. 375,000 Pr. 500,000 Pr. 6 Pr. 6 - Cl. 375,000 500,000 Pr. 6
125,000 Pr. 125,000
Pr. 7 – Cl. 100,000 Pr. 7 – CI 100,000
Pr. 40,000 Pr. 8 – CI 100,000
Pr. 8. Cl 100,000 700,000 500,000
Pr. 100,000 12/31 200,000 (d)
765,000 500,000
12/31 265,000 (d)

63. c
Costs of construction 1,200,000
Construction in progress 800,000
Revenue for long-term contracts 2,000,000
Percentage complete = P1,200,000 / (P1,200,000 +P600,000) = 2/3
Revenue recognized = 2/3 P3,000,000 = P2,000,000
Cost recognized = P1,200,000
Gross profit recognized = P2,000,000 P1,200,000 = P800,000

64. a
Costs of construction P1,200,000
Profit 800,000
Construction In Progress P2,000,000
Less: Progress billings 1,500,000
Excess (Contract asset) P 500,000
65. b
Costs of construction 600,000
Construction in progress 400,000
Revenue for long-term contracts 1,000,000
Total revenue P3,000,000 revenue previously recognized P2,000,000 = Revenue to
recognize this year P1,000,000.
Cost recognized = P600,000
Gross profit recognized = P1,000,000 P600,000 = P400,000

66. -
For long-term contracts, we view a company as having a contract asset if CIP > Billings, so Cady has a contract
asset for the first construction job of P6,000 (P20,000 CIP less P14,000 billings). For long-term contracts, we
view a company as having a contract liability if Billings > CIP, so Cady has a contract liability for the second
construction job of P2,000 (P5,000 billings less P3,000, CIP).

67. d
Costs of construction 1,200,000
Revenue for long-term contracts 1,2000,000
Under cost recovery method, revenue should be recognized up to the extent of costs incurred.
68. b
Costs of construction P1,200,000
Profit 0
Construction In Progress P1,200,000
Less: Progress billings 1,500,000
Excess (Contract liability) P( 300,000)

69. d
Costs of construction 600,000
Construction in progress 1,200,000
Revenue for long-term contracts 1,800,000
Under the cost recovery method, record equal amounts of revenue and cost until cost recovered, and then
record gross profit. In 20x4, recorded revenue and cost of P1,200,000, so record remaining cost of P600,000
and all gross profit of P1,200,000 in 20x5.

70. a
Input Measures: Efforts-Expended Method - using timbers laid
Year 2 Year 3
Timers laid Each Year 300 500
Add: Timbers laid in Prior Years 150 450
Timbers laid to date 450 950
Add: Additional support timbers to be laid 520 -0-
Total Estimated Timbers 970 950
Percentage-of-Completion 45/97 100%
x: CONTRACT PRICE P 800,000 P 800,000
Recognized Revenue to Date P 371,134 P 800,000
Recognized Revenue in Prior Years 371,134
Recognized Revenue in Current Yr. P 428,866
Output Measures – Number of trail feet
Year 2 Year 3
Trail feet Each Year 7,500 8,000
Add: Trail fees in Prior Years 3,000 10,500
Trail feet to date 10,500 18,500
Add: Additional trail feet to be constructed 8,200 ___-0-
Total Estimated Trail feet 18,700 18,500
 Percentage-of-Completion 105/187 100%
x: CONTRACT PRICE P 800,000 P 800,000
Recognized Revenue to Date P 449,198 P 800,000
Recognized Revenue in Prior Years 449,198
Recognized Revenue in Current Yr. P 350,802
71. b
20x4 20x5 20x6
Contract price………………………….. P5,000,000 P5,000,000 P5,000,000
Cost incurred each year………………. P2,050,000
Add: Cost incurred in prior year……… 900,000 2,550,000
Costs incurred to date………………… P 900,000 P2,550,000 P4,600,000
Add: Estimated costs to complete 1,700,000 -0-
Total estimated costs…………………. P4,250,000 P4,600,000
Estimated gross profit………………… P 750,000 P 400,000
Multiply by: percentage of completion. 60% 100%
Recognized gross profit to date……… P 100,000 P 450,000 P 400,000
Less: Recognized gross profit in prior years -0- 100,000 450,000
Recognized gross profit each year…. P 100,000 P 350,000 P( 50,000)

Correction – Requirement should be 20x6 instead of 20x5.

72. d – refer to No. 71
73. c
Contract Price……………………………………………… P60,000,000
Less: Total Estimated Costs
Cost Incurred to Date……………………………… P26,000,000
Add: Estimated Costs to Complete……………… 25,000,000 51,000,000
Estimated Gross Profit……………………………………. P 9,000,000
Multiplied by: % of completion…………………………. 30%
Recognized gross profit to date……………………….. P 2,700,000
Less: RGP in prior years…………………………………… _________0
Recognized gross profit in current year……………… P 2,700,000

Construction-in-progress Account:
Costs incurred to date………………………………….. P 26,000,000
GP in the current year…………………………………… 2,700,000
P 28,700,000
Less: Progress billings…………………………………….. 5,000,000
Contract asset (net)………………………………. P 23,700,000

74. c
Contract Price P100,000,000
Multiplied by: Gross Profit Rate _________25%
Estimated Gross Profit of the entire contract P 25,000,000
Multiplied by: Percentage of Completion for first year _________50%
Gross Profit realized for current year P 12,500,000

75. c
Contract Price P120,000,000
x: Mobilization Fee 10%
Collection in 20x4 P 12,000,000
Note: Billings for 20x4 will be collected in January 20x5.

76. a
Mobilization Fee: 5% x P10M P 5.0 M
 Collection on Billings:
Contract price P 100 M
x: Progress billings, net of 10% and 8% (50% - 10% - 8%) 32%
Progress billings P 32 M
x: Collections net of contract retention of 10% 90% 28.8 M
Collections in 20x4 P 33.8 M

THEORIES
1. False 6. False 11. False 16. True 21. True 26. True 31. False
2. True 7. False 12. True 17. False 22. False 27. True 32. False
3. True 8. False 13. False 18. True 23. False 28. False 33. True
4. False 9. True 14. True 19. False 24. False 29. False 34. False
5. False 10, False 15, False 20. True 25. False 30. True 35. True

36. False
37. True
38. True
39. False
40. False

41. b 46. a 51. c 56. d 61. d 66. c

42. c 47. d 52. b 57. b 62. b 67. b
43. b 48. c 53. c 58. c 63. a 68. a
44. c 49. c 54. b 59. c 64. c 69. d
45. b 50. a 55. a 60. c 65. d 70. C