REVENUE RECOGNITION: LONG TERM CONSTRUCTION

Question 7: VII - Methods of Construction Accounting

Beck Construction Company began work on a new building project on January 1, 20x4. The project is
to be completed by December 31, 20x6, for a fixed price of P108 million. The following are the actual
costs incurred and estimates of remaining costs to complete the project that were made by Beck's
accounting staff:
  Actual Costs Estimated remaining costs to
incurred in each year complete the project measured
at
Dec. 31 of each year
20x4 P30,000,000 P60,000,000
20x5 P45,000,000 P45,000,000
20x6 P35,000,000 P0

Required:
1. What amount of gross profit (or loss) would Beck record on this project in each year under
the overtime (percentage-of-completion) method?
a. 20x4
b. 20x5
c. 20x6

2. What amount of gross profit (or loss) would Beck record on this project in each year under
the point-in-time (cost recovery) method?
a. 20x4
b. 20x5
c. 20x6

Question 8: VIII - Input Measures: Overtime/Percentage-of-Completion (Cost-to-Cost) Method

versus Point-in-Time/Cost Recovery Method
DJD Builders has a fixed price contract to build a waiting shed. The initial amount of revenue agreed
is P528,000. At the beginning of the contract on January 1, 20x3 the initial estimate of the
construction costs is P480,000. By the end of 20x3 the estimate of the total costs has risen to
P484,800.
During 20x4 the customer agrees to a variation with increases expected revenue from fire contract by
P12,000 and causes additional costs of P7.200. At the end of 20x4 there de materials stored on site
for use during the following period which cost P6,000.
DJD Builders have decided to determine the stage of completion of the contract by calculating the
proportion that contract costs incurred for work to date bear to the latest estimated total contract
costs. The contract costs incurred at the end of each year (costs incurred to date), billings and
collections for each year were as follows:
Year Direct and Allocable Costs to date Billings Collections
20x3 P126,048 P144,00
P120,000
0
20x4 370,080 (including materials in store) 240,000 228,000
20x5 492,000 156,000 192,000
 
Required:
1. Compute the Current asset-Contract Asset/Current liability- Contract Liability:
a. Over Time/Percentage-of-completion method using cost-to-cost method (express
Contract Asset as positive and Current liability as negative)
i. 20x3
ii. 20x4
b. Point-in-Time/Cost recovery method (also known as zero-profit approach)
i. 20x3
ii. 20x4
2. Compute the gross profit.
a. Over Time/Percentage-of-completion method using cost-to-cost method
i. 20x3
ii. 20x4
iii. 20x5
b. Point-in-Time/Cost recovery method (also known as zero-profit approach)
i. 20x3
ii. 20x4
iii. 20x5
Question 9: X - Incomplete Data
In 20x5, DJ Builders Construction began work on a three-year construction project to build a new
performing arts complex (the "PAC"). The PAC contract price is P150 million. DJ Builders uses the
overtime/percentage-of-completion method of accounting. At the end of 20x5, the following financial
statement information indicates the results to date for the PAC:

Income Statement:  
Revenue P ? million
Cost of Construction 35 million
Gross profit P ? million
Balance Sheet:  
Accounts Receivable from construction billings P14 million
Construction in progress 50 million
Less: Billings on construction (P ? million)
Net billings in excess of construction in progress P ? million
Cash Flow Statement  
Cash Collections P 46 million
 
Required: Compute the following, placing your answer in the spaces provided and supporting
computations below:
1. Total revenue recognized during 20x5
2. Billings on construction
3. Net in excess of construction in progress
4. Calculate the percentage of completion during 20x5