No. 125 Brgy.

Saan Sebastian
Lipa City, Batang
gas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gm
mail.com

LONG TERM
M CONST
TRUCTIO
ON CONT
TRACTS
S PFRS 15

oblem 1: SMDC e
Pro enters intto a contrract with Mr. Pol tto build a building
g for P10,000,000 0
on JJanuary 2, 20x1 w
with perfformancee bonus o of P200,0000 if thee building
g is comppleted byy
Octtober 1, 20x1. Th
he bonuss is reducced by P P10,000 for each week th hat comp pletion off
the building
g is dela
ayed. The entity usually includess the completion bonuse es in thee
ntracts an
con nd, based
d on prior experieence, estiimated thhe followiing comp pletion ou
utcomes:

Comple eted by: Probabbility

Oct. 1 60%
%
Oct. 8 20%
%
Oct. 15 15%
%
Oct. 23 5%%

e total tra
The ansaction
n price of the conttract is:

Prooblem 2: On January 2, 2 2030, DM MCI Corp p. contracted to b building a

an office building
g
for Robinso on Corp. for a tottal contra act price of P11,800,000.. Estimatted total contractt
cossts are P110,400,00 00. Cost incurred d to date related too the proj
oject are a
as follow
ws:
a. Cost of direct ma aterials u
used 800,000
b. Cost of direct labbor, incluuding suppervision of P200,,000 600,000
c. Cost of indirect mmaterialss used 220,000
d. Cost inccurred in obtaining g the con
ntract preeviously wwritten offf 280,000
e. Depreciiation of e equipment used o on the prroject 480,000
f. Payroll of design n and tecchnical de epartmen nt allocatted to the
e contract 320,000
g. Insurance cost ((1/3 for th he projecct) 720,000
h. Researcch and development for w which reimmbursement is specified in n
the conttract 420,000
i. Depreciiation of iidle equippment no ot used oon a particular con ntract 240,000
j. Selling ccosts 180,000
k. General and Adm ministrative expenses spe ecifically included under
m of the ccontract
the term 120,000
l. Borrowing cost incurred d during th
he constru uction pe
eriod 520,000
m. Advances made e to subco ontractorrs 400,000
Tootal 5,3000,000

ost to cosst metho

Using the co od, what iis the rea
alized gro
oss profitt to be re
ecognized
d in yearr
30?
203

Prooblem 3: On Janu uary 1, 2025, Enttity A ente ered intoo a long tterm consstruction contractt
to cconstructt a building with initial co ontract price of PP10,000,0 000. Thee outcom me of the e
connstructionn can be estimate ed reliablyy and thee contracctor decid
ded to emmploy the e cost-to--
cosst metho od. At ccontract inception, the customer makess an ad dvance paymentt
(moobilization
n fee) off 10% of the conttract pricce deducttible from m the firsst billing. Entity A
incuurred P3,500,000 0 construction cosst during 2025 an nd the esstimated cost to ccomplete e
the building on Dece ember 31 1, 2025 iss P5,2500,000. On n Januaryy 1, 2026 6, the enttity billed
d
the customer for th he work perform med on tthe contract. On n Januarry 10, 20 026, the e
cusstomer pa ays the b
bill subjecct to reten
ntion provvision of 5%.

quirement: Prepa
Req are the jo
ournal en
ntries and
d computte the rea
alized gro
oss profitt

1 | Page
RFERRER/RLACO/ATANG/PDEJESUS
 No. 125 Brgy. Saan Sebastian
Lipa City, Batang
gas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gm
mail.com

Prooblem 4: On Janu uary 1, 20

020, an e
entity enttered into
o a long-tterm consstruction contractt
withh fixed co
ontract price of P5
5,000,00
00. The eentity bille
ed its clie
ent as folllows: 30%
% during
g
20220, 40% during 2 2021 an nd the reemainderr at the year of project completion. The e
follo
owing daata were pprovided by the ccost accountant off the entity:

2020 2
2021 20222
Cummulative C
Cost incu
urred as of the eend of
P
P2,200,0
000 P3,600,000 P4,8000,000
the yyear
mated remaining cost to ccomplete at the
Estim
P
P3,300,0
000 P900,000 -
end of the ye
ear

Reqquiremennts:
1. What is the exceess of co
onstructio
on in prog
gress ovver progre
ess billin
ngs on Decemberr
0 under p
31, 2020 percentagge of com
mpletion m
method?
2. What is the exceess of co
onstructio
on in prog
gress ovver progre
ess billin
ngs on Decemberr
31, 2021 under ccost recovvery method?

Prooblem 5: DMCI B Builders In nc. starte

ed work o
on three projects that are distinct. A
Any costt
incu
urred by the entityy is recovverable. Data rela
ating to th
he three projects are givenn below:

Esstimated
Con
ntract Cosst cost to ntract
Con
Price Incurrred complete Billlings
Pro
oject 1 1,25
50,000 937,500 - 1,25
50,000
Pro
oject 2 1,75
50,000 250,000 1,,000,000 250
0,000
Pro
oject 3 625
5,000 250,000 2
250,000 375
5,000

Reqquired: Compute e the am

mount off constru uction in progresss to be
e reporte
ed to be
e
reported on the state
ement of financiall position
n using:

A. Percenta
age of Co
ompletion
n (cost-to
o-cost) m
method

ofit Metho
B. Zero pro od

Prooblem 6:: On Jan nuary 1, 2021, SM MDC sta arted the construcction of a buildin
ng with a
fixe
ed contraact price of P10,0 000,000. The outcome of the con nstruction projectt can be
e
estiimated reliably aand the ccontracto
or decide ed to em mploy cost to cosst methood. The e
follo
owing daata are p provided by the accounta ant and project managerr concerrning the e
connstruction
n costs fo
or the thre
ee years of consttruction:

Year 12/31/2021 12/31/20

022 12//31/2023
3

Costs incurred duuring thee year ? ? P3,740,000

0
Realizedd gross p
profit/(losss) during the yearr P750,000 000) (P8
(P250,0 800,000))
Percentaage of coompletion n as of tthe end of
37.5% 5
50% ?
the yearr

What is the balance of Consttruction in

n Progresss on De
ecember 31, 2023
3?

2 | Page
RFERRER/RLACO/ATANG/PDEJESUS
 No. 125 Brgy. Saan Sebastian
Lipa City, Batang
gas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gm
mail.com

Prooblem 7: DMCI C Companyy is one o of the lea

ading connstruction
n firms in
n the couuntry. On
n
Jannuary 1, 22021, it e
entered into a lon
ng-term construcction conttract withh a fixed contractt
pricce of P4,5
500,000. The connstructionn started on July 1
1, 2021 aand endeed on Octtober 31,,
202 23. The fo
ollowing costs we
ere providded by thhe chief a
accountannt of DMCI Comp pany:

2021 20
022 2023
Consttruction ccosts incu
urred to d
date P1,000,000
0 P2,916,000 P
P4,556,2
250
Estimaated cossts to commplete as of P33,000,000
0 P1,64
40,250 P--0-
the en
nd of the year

Asssuming thhe outcome of the construction ca an be estimated rreliably a and the ccompanyy
deccided to e
employ coost-to-co
ost methood
Reqquiremen nts: Compute the followingg
1. What is the am mount off revenu ue from long-term contract for the year ended d
December 31, 20 022?
2. What is tthe amouunt of Coosts of co
onstructioon for the year end ded Dece ember 311, 2022?
3. What is tthe amouunt of Grross profiit/(gross loss), resspectively to be re
eported b
by DMCII
Company for the year end ded Dece ember 31 1, 2022?

“Believe in
n yourself and all that yo
ou are. K
Know tha
at there is
s sometthing ins
side you
at is grea
tha ater than
n any obstacle.”

3 | Page
RFERRER/RLACO/ATANG/PDEJESUS