Page​ | 1

Second Period- Quiz 2 

Chapter 7: Construction Contracts 
NAME:  Date: 
Professor:  Section:  Score: 
 
 
1. The primary issue​ ​in accounting for construction contracts is  
a. the determination of percentage of completion and proper determination of revenue 
to be recognized during the period. 
b. the allocation of contract revenue and contract costs to the accounting periods in 
which construction work is performed. 
c. the determination of the rate at which physical performance has been made during 
the reporting period and the future performance on which future revenues will be 
allocated. 
d. the allocation of costs of a long-lived asset to permit the proper matching of costs 
with revenues. 
 
2. A construction contract may be  
a. fixed price contract  c. a combination of a and b 
b. cost plus contract.  d. any of these 
 
3. VALEDICTION  Construction  Co.  entered  into  a  P80M  fixed  price  contract  for  the 
construction of a private road for FAREWELL SPEECH, Inc. The performance obligation 
on  the  contract  is  satisfied  over  time.  VALEDICTION  measures  its  progress  on  the 
contract  using  the  “cost-to-cost”  method.  The  estimated  total  contract  cost  is  P40M. 
The  following  were  the  actual  costs  incurred  by  VALEDICTION  during  the  first  year  of 
the construction:  
 
Costs of negotiating the contract (charged immediately  
as expense)  400,000  
Costs of materials used in construction  12,000,000  
Costs of materials purchased but not yet used in construction  2,000,000  
Site labor costs  4,000,000  
Site supervision costs  800,000  
Depreciation of equipment used in construction  480,000  
Depreciation of idle construction equipment  240,000  
Costs of moving plant, equipment and materials to and  
from the contract site  160,000 
Costs of hiring plant and equipment  560,000  
Advance payments to subcontractors (subcontracted  
work is not yet started)  80,000 
 
What is the percentage of completion of the contract as of the end of the first year? 
a. 42% b. 45% c. 50% d. 46%  
 
4. On  Oct.  1,  20x1,  ABC  Co.  entered  into  a  construction  contract  with  a  customer.  The 
performance  obligation  in  the  contract  will  be  satisfied  over  time.  ABC  Co.  uses  the 
“cost-to-cost”  method  in  measuring  its  progress.  The  estimated  total  contract  cost  is 
₱10M.  In  20x1,  ABC  Co.  incurred  a  total  cost  of  ₱6M,  which  includes  ₱2M  advance 
payment  to  a  subcontractor  (the  subcontracted  work  is  not  yet  started)  and  ₱200,000 
cost  of  materials  not  yet  installed.  ABC  Co.  does  not  regard  the  cost  of  the  unused 
 Page​ | 2

materials  as  significant  in  relation  to  the  expected  total  contract  costs.  Moreover, ABC 
Co.  retains  control  over  the  unused  materials  because  it  can  use  them  in  a  contract 
with  another  customer.  The  contract  price  is  ₱20M.  How  much  is  the  revenue 
recognized in 20x1? 
a. 7,600,000 
b. 12,000,000 
c. 8,200,000 
d. 11,600,000 
 
5. On  January  1,  20x1,  ABC  Co.  entered  into  a  contract  with  a  customer  for  the 
construction  of  a  building.  The  contract  price  is  ₱1,000,000.  The  following  are  the 
transactions during 20x1: 
● At  contract  inception,  the  customer  makes  an  advance  payment  of  ₱100,000  as 
facilitation fee. 
● ABC Co. incurs total contract costs of ₱300,000 during the period.  
● The estimated costs to complete as of year-end amounts to ₱500,000.  
● ABC Co. collects the billing, net of 10% retention by the customer to be used to 
rectify any unsatisfactory work determined at the completion of the contract. 
 
How much is the gross profit earned from the contract in 20x1? 
a. 75,000 
b. 82,000 
c. 375,000 
d. 482,000 
 
Use the following information for the next three cases (three questions per case): 
In  20x1,  ABC  Co.  enters  into  a  construction  contract  with  a  customer.  The  contract  price 
is ₱10,000,000. Information on the contract follows: 
   20x1  20x2  20x3 
Costs incurred to date  2,400,000  4,500,000  6,000,000 
Estimated costs to complete  3,600,000  1,500,000  - 
 
Case #1:  
At  contract  inception,  ABC  Co.  assesses  its  performance  obligations  in  the  contract  and 
concludes  that  it  has  a  single  performance  obligation  that  is  satisfied  over  time.  ABC  Co. 
determines  that  the  measure  of  progress  that  best depicts its performance on the contract 
is the “cost-to-cost” method.  
 
6. How much is the revenue recognized in 20x1? 
a. 4,200,000 
b. 4,000,000 
c. 2,800,000 
d. 3,500,000 
 
7. How much is the cost of construction recognized as expense in 20x2? 
a. 2,100,000 
b. 2,400,000 
c. 3,800,000 
d. 1,500,000 
 
8. How much is the gross profit recognized in 20x3? 
a. 1,000,000 
 Page​ | 3

b. 1,500,000 
c. 2,100,000 
d. 2,800,000 
 
Case #2:  
At  contract  inception,  ABC  Co.  assesses  its  performance  obligations  in  the  contract  and 
concludes  that  it  has  a  single  performance  obligation  that  is  satisfied  over  time. However, 
ABC  Co.  determines  that  the  outcome  of  the  performance obligation cannot be reasonably 
measured but expects to recover the contract costs incurred. 
 
9. How much is the revenue recognized in 20x1? 
a. 4,200,000 
b. 4,000,000 
c. 2,400,000 
d. 0 
 
10. How much is the cost of construction recognized as expense in 20x2? 
a. 2,100,000 
b. 2,400,000 
c. 3,800,000 
d. 0 
 
11. How much is the gross profit recognized in 20x3? 
a. 5,500,000 
b. 1,500,000 
c. 4,000,000 
d. 2,100,000 
 
Case #3:  
At  contract  inception,  ABC  Co.  assesses  its  performance  obligations  in  the  contract  and 
concludes that it has a single performance obligation.  
 
In  its  determination  of  the  satisfaction  of  the  performance  obligation,  ABC  Co.  identifies 
that,  during  the  construction  period,  ABC  Co.  retains  control over the asset created in the 
contract.  This  precludes  the  customer  from  simultaneously  receiving  and  consuming  the 
benefits  provided  by  ABC  Co.’s  performance  as  ABC  Co.  performs.  Moreover,  the  asset 
created  in  the  contract  has  an  alternative  use  to  ABC  Co.  because,  in case the contract is 
cancelled,  ABC  Co.  retains  ownership  over  any  asset  created  and  can  direct that asset for 
another  use  without  significant  modification  or  cost.  Accordingly,  ABC  Co. concludes that 
the performance obligation is satisfied ​at a point in time​.  
 
ABC  Co.  determines  the  point  in  time  when  the  performance  obligation  is  satisfied  using 
the  principles  in  PFRS  15  and  concludes  that  the  performance  obligation  is  satisfied  only 
when  the  construction  is  completed  and  the  control  over  the  promised good is transferred 
to the customer. 
 
12. How much is the revenue recognized in 20x1? 
a. 4,200,000 
b. 4,000,000 
c. 2,400,000 
d. 0 
 
 Page​ | 4

13. How much is the cost of construction recognized as expense in 20x2? 

a. 2,100,000 
b. 2,400,000 
c. 3,800,000 
d. 0 
 
14. How much is the gross profit recognized in 20x3? 
a. 5,500,000 
b. 1,500,000 
c. 4,000,000 
d. 2,100,000 
 
15. ABC  Co.  started  work  on  two  separate  projects  during  20x1.  Information  on  these 
projects is shown below: 
 
Contract  Estimated costs  Progress 
Project  price  Costs incurred  to complete  billings 
A  9,000,000  4,000,000  2,000,000  5,000,000 
B  8,000,000  5,000,000  -  8,000,000 
 
How  much  is  the  total  balance  of  the  “construction  in  progress”  accounts  as  of December 
31, 20x1 under the percentage of completion method? 
a. 4,000,000 
b. 6,000,000 
c. 14,000,000 
d. 0 
 
16. On  January  1,  20x1,  ABC  Co.  entered  into  a  contract  with  a  customer  for  the 
construction  of  a  building.  The  contract  price  is  ₱1,000,000.  The  following  are  the 
transactions during 20x1: 
● At  contract  inception,  the  customer  makes  an  advance  payment  of  ₱100,000  as 
facilitation fee. 
● ABC Co. incurs total contract costs of ₱300,000 during the period.  
● The estimated costs to complete as of year-end amounts to ₱500,000.  
● ABC  Co.  collects  the  billing,  net  of  10%  retention  by  the  customer  to  be  used  to 
rectify any unsatisfactory work determined at the completion of the contract. 
 
How much is the cost of construction recognized as expense in 20x1? 
a. 175,000 
b. 375,000 
c. 300,000 
d. 285,000 
 
17.  PFRS  15  requires  how  many  steps  in  recognizing  revenue  from  contracts  with 
customers? 
a. 2 c. 5  
b. 3 d. 7 
 
 
 
 
 Page​ | 5

Use the following information for the next two cases (18 and 19) 
SOLUTION  Construction  Co.  entered  into  a  fixed  price  contract  for  the  construction  of  a 
building  for  PROBLEM,  Inc. SOLUTION determines the stage of completion of construction 
contracts using the “cost-to-cost” method. 
 
The estimated total costs of the contract are as follows:  
Estimated costs of design and technical 
assistance that are directly related to the contract  800,000 
Estimated costs of design and technical 
assistance that are not directly related to a 
specific contract (properly allocated)  200,000 
Estimated costs of materials to be used in the 
construction  22,000,000 
 
Estimated costs of construction labor  11,200,000 
Estimated costs of rectification and guarantee 
work, including expected warranty costs  1,200,000 
Estimated administrative costs expected to be 
reimbursed in accordance with contractual 
agreement  520,000 
Estimated insurance costs during construction  80,000 
Estimated construction overheads  4,000,000 
Estimated marketing costs for selling 
condominium units  ​ 400,000 
Estimated total contract costs   40,400,000 
 
The following were the actual costs incurred by SOLUTION during the first year of the 
construction:  
Costs of design and technical assistance 
that are directly related to the contract  400,000 
Costs of design and technical assistance 
that are not directly related to a specific 
contract (properly allocated)  100,000 
Costs of materials used in the construction  12,000,000 
Costs of construction labor  6,000,000 
Administrative costs expected to be 
reimbursed in accordance with contractual 
agreement.   880,000 
Administrative costs not expected to be 
reimbursed   120,000 
Research and development costs for which 
reimbursement is not specified in the 
contract   6,800,000 
Insurance costs during construction  60,000 
Construction overheads  960,000 
 
Marketing costs   800,000 
Total costs incurred to date   28,120,000
 
18. What is the total cost incurred to date? 
a. 21,320,000b. 28,000,000 c. 20,000,000d. 20,400,000  
 
 Page​ | 6

19. What is the percentage of completion of the contract as of the end of the first year? 
a. 42% b. 45% c. 50% d. 51%  
 
Use the following information for the next six cases (20-25):​  
As  of  2  February 2020, approximately 14,642 cases have been confirmed infected for novel 
coronavirus  of  which  14,462  cases  are  from  Mainland  China.  Wuhan,  China  was  totally 
locked  down  and  the  Government  of  China  started  building  an  emergency  specialty  field 
hospital  called  “Huoshenshan  Hospital”  from  23  January  2020  to  2  February  2020  and 
operation  scheduled  to  start  by  3  February  2020.  The  Philippine’  government  was 
mesmerized  by  the  fast  construction  of  the  said hospital for only just 10 days to complete. 
The  Philippine’  government  started  to  build  a  2-storey  public hospital to treat coronavirus 
as  the  outbreak  is  expected  to  last  for  four  years.  Chongchingchong  Construction  was 
hired  to  finish  the  construction  in  2022.  Chongchingchong  Construction  has  consistently 
used  the  percentage-of-completion  method  of  accounting  for  construction-type  contracts. 
During  2020,  Chongchingchong  Construction  started  work  on  a  P100,000,000  fixed-price 
construction  contract  that  will  be  completed  in  2022.  Chongchingchong  accounting 
records disclosed the following: 
 
December 31 
2020 2021    
Cumulative contract costs incurred P 30,900,000 P 64,080,000 
Estimated total cost at completion   61,800,000 80,100,000   
 
20. What is the percentage of completion as of 2020? 
a. 45% 
b. 37% 
c. 52% 
d. 50% 
 
21. What is the gross profit/loss for the year 2020? 
a. Php 34.351 Million 
b. Php 30.520 Million 
c. Php 34.550 Million 
d. Php 19.100 Million 
 
22. What is the contract cost incurred for 2021? 
a. Php 33.18 Million 
b. Php 64.08 Million 
c. Php 80.10 Million 
d. Php 18.30 Million 
 
23. What is the percentage completed for 2021? 
a. 55.15% 
b. 30% 
c. 32% 
d. 23.13% 
 
24. The revenue recognized to date in 2021? 
a. Php 33.00 Million 
b. Php 83.79 Million 
c. Php 30.00 Million 
d. Php 80.00 Million 
 Page​ | 7

 
25. What is the revenue recognized for the year 2021?  
a. Php 30.00 Million 
b. Php 31.79 Million 
c. Php 81.80 Million 
d. Php 83.79 Million 
 
 
“Come to Me, all you who labor and are heavy laden, and I will give you rest.” ​(Matthew 
11:28) 
 
- END - 
 
SOLUTIONS: 
1. B 
2. D 
 
3. Solution: 
The total costs incurred to date are computed as follows: 
Costs of materials used in construction  12,000,000  
Site labor costs  4,000,000  
Site supervision costs  800,000  
Depreciation of equipment used in construction  480,000  
Costs of moving plant, equipment and materials to and  
from the contract site  160,000 
Costs of hiring plant and equipment  560,000  
Total costs incurred to date  18,000,000 
 
The percentage of completion as of the end of the first year is computed as follows: 
Percentage of completion  =  Total costs incurred to date 
Estimated total contract costs 
Percentage of completion = 18,000,000 ÷ 40,000,000 
Percentage of completion = 4​ 5% 
 
4. Solution: 
Percentage of completion = (6M – 2M – 200K) ÷ 10M 
Percentage of completion = ​(3.8M ÷ 10M) =​ ​38% 
38% x 20M =​ 7.6M 
 
5. A ​Solution: 
   Total contract price   1,000,000  
(a)   Costs incurred to date   300,000  
  Estimated costs to complete   500,000  
(b)   Estimated total contract costs   800,000  
  Expected gross profit from contract   200,000  
  Multiply by: Percentage of completion ​(a) ÷ (b)  37.50% 
   Gross profit earned to date   75,000  
  Less:​ Gross profit earned in previous years    - 
   Gross profit for the year   75,000  
 
 
 Page​ | 8

6. B (see solutions below) 

7. A (see solutions below) 
8. A 
 
Solutions: 
   20x1  20x2  20x3 
Total contract price  10,000,000  10,000,000  10,000,000 
Costs incurred to date ​(a)  2,400,000  4,500,000  6,000,000 
Estimated costs to complete  3,600,000  1,500,000  - 
Estimated total contract costs (b)  6,000,000  6,000,000  6,000,000 
Expected profit (loss)  4,000,000  4,000,000  4,000,000 
Multiply by: % of completion ​(a) ​÷​ (b)   40%  75%  100% 
Profit (loss) to date  1,600,000  3,000,000  4,000,000 
Profit recognized in prior years  -  (1,600,000)  (3,000,000) 
Profit (loss) for the year  1,600,000  1,400,000  1,000,000 
 
   20x1  20x2  20x3 
Total contract price  10,000,000   10,000,000   10,000,000  
Multiply by: % of completion  40%  75%  100% 
Contract revenue to date  4,000,000   7,500,000   10,000,000  
Contract revenue in prior yrs.  -  (4,000,000)  (7,500,000) 
Contract revenue for the year  4,000,000   3,500,000   2,500,000  
Cost of construction (a)​   (2,400,000)  (2,100,000)  (1,500,000) 
Profit (loss) for the year  1,600,000   1,400,000   ​1,000,000  
 
9. C (see solutions below) 
10. A (see solutions below) 
11. C 
 
Solutions: 
   20x1  20x2  20x2 
Contract revenue to date (a)​   2,400,000   4,500,000   10,000,000  
Contract revenue in prior yrs.  -  (2,400,000)  (4,500,000) 
Contract revenue for the year  2,400,000   2,100,000   5,500,000  
Cost of construction (b)​   (2,400,000)  (2,100,000)​   (1,500,000) 
Profit (loss) for the year  -  -  ​4,000,000 
 
The  “contract  revenue  to  date”  in  20x1  and 20x2 are equal to the costs incurred to date. 
(a)  ​
However,  the  contract  revenue  to  date  in  20x3  is  the  transaction  price  of  ₱10,000,000 
because the contract is 100% complete. 
The  revenues  recognized  in  20x1  and  20x2  are  equal  to  the  recoverable  costs 
incurred  during  those  years.  In  20x3,  when  the  construction  is  completed,  the  revenue 
recognized  is  the  transaction  price  adjusted  for  the  revenues  recognized  in  the  previous 
years.  
 
(b)  “​Cost of construction​”  is  equal to the costs incurred during the period. In 20x2 and 20x3, 
​

the costs of construction are computed as “costs incurred to date” ​minus ​“costs incurred in 
prior years: 20x2: (4.5M – 2.4M = ​2.1M)​ and 20x3: (6M – 4.5M = ​1.5M​). 
 
12. D (see solutions below) 
13. D (see solutions below) 
 Page​ | 9

14. C 
 
Solutions: 
 
   20x1  20x2  20x3 
Contract revenue to date (a)​   -  -  10,000,000  
Contract revenue in prior years  -  -  - 
-  - 
Contract revenue for the year  10,000,000  
-  - 
Cost of construction (b)​   (6,000,000) 
Profit (loss) for the year  -  -  ​4,000,000 
 
(a)  No  revenue  is  recognized  during  the  construction  period  because  the  performance 
​

obligation  is  satisfied  ​at a point in time​. The whole of the transaction price is recognized as 

revenue  only  in  20x3  when  the  construction  is  completed  and  the  control  over  the 
promised good is transferred to the customer. 
 
(b)  The  costs  incurred  each year during the construction period are deferred and recognized 
​

in full only in 20x3 when the related revenue is recognized. 

 
 
15. B ​Solution: 
 
Profit (loss) for the year is computed as follows: 
   Project  A  B 
  Total contract price  9,000,000   8,000,000  
(a)  Costs incurred to date  4,000,000   5,000,000  
  Estimated costs to complete  2,000,000   - 
(b)  Estimated total contract costs  6,000,000   5,000,000  
  Expected profit (loss)  3,000,000   3,000,000  
  Multiply by: % of completion ​(a) ​÷​ (b)   67%  100% 
   Profit (loss) to date  2,000,000   3,000,000  
  Profit in previous years   -  - 
   Profit (loss) for the year  2,000,000   3,000,000  
 
The  balances  in  construction  in  progress  accounts  as  of  December  31,  20x1  under 
percentage of completion​ are determined as follows: 
  CIP – ​A    CIP – ​B   
Costs incurred  4,000,000      5,000,000     
Profit  2,000,000      3,000,000  8,000,000  *  
    6,000,000      -   
 
 
*Since  project  ​B  i​ s  100%  complete,  it  is  assumed  that  the  completed  project  was  turned 
over to the customer. 
 
16. C ​Solution: 
   Total contract price   1,000,000  
(a)   Costs incurred to date   300,000  
  Estimated costs to complete   500,000  
 Page​ | 10

(b)   Estimated total contract costs   800,000  

  Expected gross profit from contract   200,000  
  Multiply by: Percentage of completion ​(a) ÷ (b)  37.50% 
   Gross profit earned to date   75,000  
  Less:​ Gross profit earned in previous years    - 
   Gross profit for the year   75,000  
17.  
Total contract price  1,000,000 
Multiply by: Percentage of completion  37.50% 
Revenue to date  375,000 
Less:​ Revenue recognized in previous yrs.  - 
Revenue for the year   375,000 
Cost of construction​ ​(squeezed)​*  (300,000) 
Gross profit for the year (see computation above)  75,000 
 
17. C 
 
18. D (28.12M – .120M - 6.8M - .8M) = ​20.4M 
19. D (28.12M – .120M - 6.8M - .8M) ÷ (40.4M - .4M) = ​51% 
 
20. D (30.9M/61.8= ​50% 
21. D (100M - 61.8M)* 50% = ​19.1M 
22. A (64,080,000- 30,900,000)= ​33.18M 
23. B (2021 POC= 80%) - (2020 POC= 50%) = ​30%  
24. D (100M x 80%)= ​80M 
25. A (80M - 50M) = ​30M