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Chapter 8

Problem I
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:
Contract price

P 1,800,000
Costs incurred:
2008
2009

P 450,00
1,100,000

Total cost
Total gross profit
Recognized in 2008
Recognized in 2009
2. Input Measure - Cost Recovery Method
2008: (all costs not yet recovered)
2009:
Contract price
Costs incurred:
Total cost
Total gross profit

1,550,000
250,000
40,905
P 209,095

P -01,800,00
2008
2009

P 450,000
1,100,000
1,550,000
P 250,000

Problem II
1. Input Measure - Percentage of Completion Method (Cost to cost Method)
Years
Gross Profit (or Loss)
Supporting computations
recognized
2008
P 2 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)
2008
P -0-

2009
2010

(P 12 million)
P 10 million

Supporting computations
( P108 90) = P18 anticipated gross
profit, so no need to recognized a
gross loss
Total loss is ( P108 120) = (12 million)
Total loss is (P108- 110) ( P2 million)
To date, ( P12 million was recorded:
therefore, ( P2 million) ( P12 million)
= P10 million in 2010

Problem III
1. Journal Entries
a. Input Measure Percentage of completion (cost-to-cost method)
The following analysis is to determine the percentage of completion:
Contract price:
Initial amount of contract...
Variation..
Total contract price..
Costs incurred each year
Add: Costs incurred in prior years.
Actual costs incurred to date (1)..
Add: Estimated costs to complete..
Total estimated costs (3)..
Estimated gross profit
Percentage of completion (1) / (3)

20x3

20x4

20x5

P528,000
_______P528,000
P 126,048
_______P126,048
_358,752
P484,800
P 43,200
26%

P528,000
__12,000
P540,000
*P244,032
_126,048
*P370,080
_121,920
P492,000
P 48,000
**74%

P528,000
__12,000
P540,000
P121,920
_370,080
P492,000
_______P492,000
P 48,000
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:
20x3
Revenue (P528,000 x 26%)
Costs/Expenses (P484,800 x 26%)
Gross Profit (P43,200 x 26%)

To date
P 137,280
126,048
P 11,232

Recognized in
prior years
-

Recognized in
current year
P 137,280
126,048
P 11,232

20x4
Revenue (P540,000 x 74%)
Costs/Expenses (P492,000 x 74%)
Gross Profit (P48,000 x 74%)

To date
P 399,600
_364,080
P 35,520

Recognized in
prior years
P 137,280
_126,048
P 11,232

Recognized in
current year
P 262,320
238,032
P 24,288

20x5
Revenue (P540,000 x 100%)
Costs/Expenses (P492,000 x 100%)
Gross Profit (P48,000 x 100%)

To date
P 540,000
_492,000
P 48,000

Recognized in
prior years
P 399,600
_364,080
P 35,520

Recognized in
current year
P 140,400
_127,920
P 12,480

Alternatively, the gross profit recognized each year may also be computed as follows:
20x3
Contract price:

20x4

20x5

Initial amount of contract.......


Variation
Total contract price
Costs incurred each year.
Add: Costs incurred in prior years..
Actual costs incurred to date (1)...
Add: Estimated costs to complete
Total estimated costs (3)...
Estimated gross profit
Percentage of completion (1) / (3)...
Gross profit to date.
Less: Gross profit in prior years.
Gross profit in current year -% of completion
Gross profit in current year cost recovery method

P528,000
_______P528,000
P126,048
_______P126,048
_358,752
P484,800
P 43,200
____26%
P 11,232
_______P 11,232
P
0

P528,000
__12,000
P540,000
P240,032
_126,048
P370,080
_121,920
P492,000
P 48,000
____74%
P 35,520
___11,232
P 24,288
P
0

P528,000
12,000
P540,000
P121,920
_370,080
P492,000
_______P492,000
P 48,000
___100%
P 48,000
__35,520
P 12,480
P 48,000

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


Percentage of Completion Method
20x3
1. To record costs incurred:
Construction In Progress*......
Materials Inventory..
Cash, payables, etc..

126,048

232,032
6,000
126,048

2. To record progress billings:


Accounts receivable..
Progress billings*..

144,000

3. To record collections:
Cash.....
Accounts receivable

120,000

4. To recognize Revenue, Costs


and Gross Profit:
Construction Expenses
Construction in Progress*......
Revenue from Construction......

20x4

127,920
6,000
121,920

244,032

240,000
144,000

156,000
240,000

228,000
120,000

126,048
11,232

20x5

156,000

192,000
228,000

238,032
24,288
137,280

192,000

127,920
12,480
262,320

5. To close Construction In Progress**


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

140,400

540,000
540,000

b. Input Measure Cost Recovery Method


The following table shows the data needed for further analysis:
20x3
Contract price:
Initial amount of contract...
Variation..
Total contract price..
Costs incurred each year
Add: Costs incurred in prior years.
Actual costs incurred to date....
Add: Estimated costs to complete..

P528,000
_______P528,000
P126,048
_______P126,048
____ _?

20x4
P528,000
__12,000
P540,000
P244,032
_126,048
P370,080
____ _?

20x5
P528,000
__12,000
P540,000
P121,920
_370,080
P492,000
_______-

Total estimated costs ...

P492,000

The revenue, expenses (costs) and profit will be recognized in profit or loss as follows:
20x3
Revenue*
Costs/Expenses
Gross Profit
* equivalent to costs incurred

To date
P 126,048
126,048
P
0

Recognized in
prior years
-

Recognized in
current year
P 126,048
126,048
P
0

20x4
Revenue*
Costs/Expenses
Gross Profit
* equivalent to costs incurred

To date
P 364,080
_364,080
P
0

Recognized in
prior years
P 126,048
126,048
P
0

Recognized in
current year
P 238,032
238,032
P
0

To date

Recognized in
prior years

Recognized in
current year

20x5
Revenue (P540,000 x 100%)

P 540,000

Costs/Expenses (P492,000 x 100%)

P 364,080

_492,000

Gross Profit (P48,000 x 100%)

P 48,000

P 175,200

364,080

127,920

P 48,000

Alternatively, the gross profit recognized each year may also be computed as follows:
20x3
Contract price:
Initial amount of contract.......
Variation
Total contract price
Costs incurred each year.
Add: Costs incurred in prior years..
Actual costs incurred to date ....
Add: Estimated costs to complete
Total estimated costs ....
Estimated gross profit.
Percentage of completion..
Gross profit to date.
Less: Gross profit in prior years.
Gross profit in current year...

P528,000
_______P528,000
P 126,048
_______P 126,048
____ _?
P
?
P
0
_ -___
P
0
_______P
0

20x4

20x5

P528,000
__12,000
P540,000
P244,032
_126,048
P370,080
____ _?
P
?
P
0
_ -___
P
0
_______P
0

P528,000
12,000
P540,000
P 121,920
_370,080
P492,000
_______P492,000
P 48,000
___100%
P 48,000
__
0
P 48,000

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


20x3
1. To record costs incurred:
Construction In Progress*......
Materials Inventory..
Cash, payables, etc..

126,048

20x4
238,032
6,000

126,048

2. To record progress billings:


Accounts receivable..
Progress billings*..

144,000

3. To record collections:
Cash.....
Accounts receivable

120,000

127,920
6,000
121,920

244,032

240,000
144,000

156,000
240,000

228,000
120,000

20x5

156,000

192,000
228,000

192,000

4. To recognize Revenue, Costs


and Gross Profit:
Construction Expenses
Construction in Progress*......
Revenue from Construction......

126,480

238,032
126,480

127,920
48,000
238,032

5. To close Construction In Progress**


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

2. Due from/Due to Customers


a. Input Measure - Percentage of Completion Method
Current Asset:
Accounts receivable.
Other receivables:
Construction In Progress
Less: Progress billings.
Gross amount due from customers...
Raw materials Inventory

Current Liability:
Payables (Payments on Account)
Progress billings
Less: Construction In Progress.
Gross amount due to customers

Construction In Progress

20x3
P 24,000

175,920

540,000
540,000

20x4
P 36,000

20x5

P399,600
_384,000
P 15,600
P 6,000

P144,000
_137,280
P 6,720

Progress Billings

20x3 CI 126,048
Pr 11,232

144,000 20x3

end of x3 137,280
20x4 CI 238,032
Pr
11,232

144,000 end of x3
240,000 20x4

end of x4 399,600
20x5 CI 127,920
Pr
12,480

384,000 end of x4
156,000 20x5

540,000

540,000

540,000

540,000

where: CI - cost incurred each year


Pr - profit

b. Input Measure Cost Recovery Method


Current Asset:
Accounts receivable.
Raw materials Inventory

20x3
P 24,000

20x4
P 36,000
P 6,000

20x5

Current Liability:
Payables (Payments on Account)

Progress billings
Less: Construction In Progress.
Gross amount due to customers

Construction In Progress

P 137,280
_144,000
P 6,720

P384,000
_364,080
P 19,920

Progress Billings

20x3 CI 126,048
Pr
0

144,000 20x3

end of x3 126,048
20x4 CI 238,032
Pr
0

144,000 end of x3
240,000 20x4

end of x4 364,080
20x5 CI 127,920
Pr
48,000

384,000 end of x4
156,000 20x5

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)
Revenue
Less: Costs / Expenses...
Gross Profit.

20x3
P 137,280
_126,048
P 11,232

20x4
P 262,320
_238,032
P 24,288

20x5
P 140,400
_127,920
P 12,480

b. Input Measure Cost Recovery Method (refer to requirement 1 for detailed computation)
Revenue
Less: Costs / Expenses...
Gross Profit.

20x3
P 126,048
_126,048
P
0

20x4
P 238,032
_238,032
P
0

20x5
P 175,920
_127,920
P 48,000

Problem IV
1. Anticipated/Gross Loss
a. Input Measure Percentage of Completion (Cost-to-Cost Method)

2008:
Contract price
Actual cost to date
Estimated costs to complete
Total estimated project costs
Estimated loss, recognized in 2008

P2,500,000
P1,500,000
1,200,000
2,700,000
P (200,000)

2009:
Contract price
Costs incurred:

P 2,500,000
In 2008
In 2008

P1,500,000
1,300,000

Total cost
Total loss
Recognized in 2008
Recognized in 2009

2,800,000
P (300,000)
(200,000)
P (100,000)

a. Input Measure Cost Recovery Method


Loss in 20x4
Loss in 20x5

P( 200,000)
P (100,000)

2. Journal Entries
a. Input Measure Percentage of Completion (Cost-to-Cost Method)
2008:
Construction in progress
Various credits

1,500,000
1,500,000

Accounts receivable
Billings on construction contract

1,200,000

Cash
Accounts receivable

1,000,000

Cost of construction
Construction in progress (loss)
Revenue from long-term contracts*
2009:
Construction in progress
Various credits

1,588,889

Accounts receivable
Billings on construction contract

1,300,000

Cash
Accounts receivable

1,500,000

Cost of construction
Construction in progress (loss)
Revenue from long-term contracts**

1,211,111

Billings on construction contract


Construction in progress

2,500,000

*P2,500,000
** P2,500,000
Problem V

(P1,500,000/P2,700,000)
1,388,889

1,200,000
1,000,000
200,000
1,388,889
1,300,000
1,300,000
1,300,000
1,500,000
100,000
1,111,111
2,500,000

Item to compute
Total revenue recognized during 2009 (w):
CIP contains cost + gross profit = revenue, so w = P50
Gross profit recognized during 2009 (x): P50 P35 = P15
Billings on construction (y) : P14 + P 46 = P60
Net billings in excess of construction in progress (z): Billings of P60 CIP of
P50
Calculate the percentage of PAC that was completed during 2009:
50/150 = 33.33%
Problem VI
Item to compute
Cash collected by KP on Cincy One during 2009. (P75 billings P10 A/R)
Actual costs incurred by KP on Cincy One during 2009 (P66 CIP P22
gross pofit)
At 12/31/2009, the estimated remaining costs to complete Cincy One
(44/{44 + x})(300 {44 + x}) = 22; x = 156
The percentage of Cincy One that wa completed during 2009 100 x (44/
{44 + 156})
Problem VII
1.
Progress billings on construction contract
Less accounts receivable
Cash collected in 20x4

Answer
P50 million
P 15 million
P60million
P10 million

333.33%

Answer
P65 million
P44 million
P156 million
22%

P562,000
150,500
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 VIII
1. Percentage of Completion Method (Cost-to-cost Approach)
20x4
Contract price ...................
P250,000
Current year costs ...............
110,000
Costs to date ....................
110,000
Estimated cost to complete .......
100,000
Estimated total cost .............
210,000
Estimated total gross profit .....
40,000
Percent complete .................
52%
Revenue to date ..................
P130,000

20x4:

Revenue
Costs (110/210 x 210)
Gross profit

20x5:

Revenue

20x5
P250,000
120,000
230,000
20,000
245,000
5,000
94%
P230,000

20x6
P250,000
15,000
245,000
0
240,000
5,000
100%
P250,000

To Date
at Dec. 31
P130,000
110,000
P 20,000

Previous
Years

Current
Year
P130,000
110,000
P 20,000

P235,000

P130,000

P105,000

20x6:

Costs (230/245 x 245)


Gross profit (loss)

230,000
5,000

110,000
P 20,000

120,000
P(15,000)

Revenue
Costs
Gross profit

P250,000
245,000
P 5,000

P235,000
230,000
P 5,000

P 15,000
15,000
P
0

20x4
1.
2.
3.
4.
5.

Revenue recognized during


the year
Gross profit recognized during
the year
Balance in the construction in
progress account at Dec. 31 .
Balance in the progress
billings account at Dec. 31 .
Net (3-4) or (4-3) due from (due to)

20x5

20x6

P130,000

P100,000

P15,000

20,000

(15,000)

130,000

235,000

125,000
5,000

250,000
(15,000)

0
0

2. Cost Recovery Method


20x4
1.
2.
3.
4.
5.

Revenue recognized during


the year
Gross profit recognized during
the year
Balance in the construction in
progress account at Dec. 31 .
Balance in the progress
billings account at Dec. 31 .
Net (3-4) or (4-3) due from (due to)

20x5

20x6

P110,000

P120,000

P20,000

5,000

110,000

230,000

125,000
(15,000)

250,000
(20,000)

0
0

Problem IX
1. Percentage of Completion Method (Cost-to-cost Approach)
Contract price
Current year costs
Costs to date
Estimated cost to complete
Estimated total cost
Estimated total gross profit
Percent complete

2005
P250,000
150,000
150,000
90,000
240,000
10,000
63%

2006
P250,000
100,000
250,000
20,000
270,000
(20,000)
93%

2007
P250,000
15,000
265,000
0
265,000
(15,000)
100%

Revenue to date

P157,500

P232,500

P250,000

2005:

Revenue ............
Costs (150/240 x 240)
Gross profit ............

2006:

Revenue ............
Costs ............

To Date
at Dec. 31
P157,500
150,000
P 7,500

Previous
Years

Current
Year
P157,500
150,000
P 7,500

P232,500
252,500

P157,500
150,000

P 75,000
102,500

2007:

Gross profit (loss) ............

P(20,000)

P 7,500

P(27,500)

Revenue ............
Costs ............
Gross profit (loss) ............

P250,000
265,000
P(15,000)

P232,500
252,500
$(20,000)

P 17,500
12,500
P 5,000

20x4

20x5

1. Construction costs (expense)


recognized during the year
2. Gross profit recognized during
the year
3. Balance in the construction in
progress account at Dec. 31
(after closing entries)
4. Balance in the progress
billings account at Dec. 31 .
5. NNet (3-4) or (4-3) due from (due to)
Balance in accounts receivable
at Dec. 31 (after closing entries)

20x6

P150,000

P102,500

P12,500

7,500

(27,500)

5,000

157,500

230,000*

110,000
47,500

230,000
0

0
0

10,000

10,000

*P150,000 + 7,500 + 157,500 + 100,000 costs incurred during the year 27,500 loss
2. Cost Recovery Method
20x4
1. Construction costs (expense)
recognized during the year
2. Gross profit recognized during
the year
3. Balance in the construction in
progress account at Dec. 31
(after closing entries)
4. Balance in the progress
billings account at Dec. 31 .
5. NNet (3-4) or (4-3) due from (due to)

P150,000
0

20x5

20x6

P 80,000*

P20,000**

(20,000)

5,000

150,000

***230,000

110,000
40,000

230,000
0

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
Costs incurred each year
(2.5 M + 2.0 M + 1 M* + .5 M)
Add: Cost incurred in prior years
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Percentage of completion

P
P

6M
0
6M

P 18 M
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.
2. b
P7,200,000
x (P15,000,000 P12,000,000) = P1,800,000.
P7,200,000 + $4,800,000
3. 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.
4. 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:

5. b

6.

7.

CI in 2004
RGP in 20x4 (?)
End of 20x4
CI in 20x5
RGP in 20x5 (?)

Construction-In-Progress
210,000
34,000
244,000
384,000
100,000

End of 20x5

728,000

P1,200,000
x (P7,200,000 P4,800,000) = P600,000.
P4,800,000
P7,200,000 P4,875,000 =P2,325,000.

Contract Price
x: Percentage-of-completion
Recognized Revenue to date
Less: Costs incurred to date
Gross Profit to date
Less: GP in prior year
Gross profit in current year
8.

9.

P3,600,000
x (P8,400,000 P6,000,000) = P1,440,000.
P6,000,000
P8,400,000 P5,600,000 = P2,800,000.

20x4
P4,800,000
_______75%
P3,600,000
P3,400,000
P 200,000
_______-0P 200,000

Items 10 and 11
No number requirement identified, if percentage-of-completion then the answer would (a)
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.
10. Cost Recovery Method - c - P5,500,000 P3,350,000 = P2,150,000.
11. a - Gross profit is recognized in the year of sale, 20x4; therefore, in 20x6 no gross profit should
be realized.
12. 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.

13. a
Contract Price
Less: Total Estimated Costs
Costs Incurred-1/10/x4 to 12/31/x5
Add: Estimated costs to complete
Less: Costs incurred to date
Multiplied by: % of completion
Gross Profit to date
Less: GP in prior year (given)
Gross profit in current year

P6,000,000
P3,600,000
1,200,000

4,800,000
P1,200,000
___3.6/4.8
P 900,000
___600,000
P 300,000

14. b
20x4: Cost to date P7,500,000 x 20%
20x5: Cost to date P8,000,000 x 60%
Cost incurred during 20x5

P1,500,000
4,800,000
P3,300,000

15. b = (P25,000,000 .60) (P22,500,000 .25) = P9,375,000.


16. b
Costs Incurred
Contract price.
Cost incurred each year..
Add: Cost incurred in prior year.
Costs incurred to date..
Add: Estimated costs to complete
Total estimated costs.
Estimated gross profit (loss)..
Multiplied by: percentage of completion..
Construction In Progress account
Less: Progress billings
Construction In Progress account (net) or Due from customers

50,000
P260,000
P 50,000
-0P 50,000
150,000
P200,000
P60,000)
__50/200

15,000
65,000
30,000
35,000

17. d - P2,040,000 P980,000 = P1,060,000 (revenue limited to costs incurred since cost-recovery
method must be used).
18. a - P2,040,000 (P1,000,000 + P1,000,000) = P40,000.
19. c - (P1,000,000 + P1,000,000) (P648,000 + P1,280,000) = P72,000.

20. d
21. d
Recognized gross profit (loss) to date..
Less: Recognized gross profit in prior years.
Recognized gross profit each year..

P( 100,000)
____20,000
P (120,000)

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


23. c
Contract price.
Cost incurred each year..
Add: Cost incurred in prior year.
Costs incurred to date..
Add: Estimated costs to complete
Total estimated costs.
Estimated gross profit (loss)..
Multiplied by: percentage of completion..
Recognized gross profit (loss) to date..
Less: Recognized gross profit in prior years.
Recognized gross profit each year..

Prior year
P7,000,000

P600,000

Current year
P7,000,000

P5,000,000
2,800,000
P7,800,000
(P 800,000)
_____100%
(P 800,000)
___600,000
(P1,400,000)

24. c

P7,440,000 .30 = P2,232,000.

25. d

(P7,200,000 .75) (P7,100,000 .30) = P3,270,000.

26. b

(P7,440,000 .75) (P620,000 8) = P620,000 debit.

27. c

P7,440,000 .25 = P1,860,000


P7,500,000 (P7,200,000 .75) = P2,100,000.

28. b

(P9,000,000 P8,250,000) (P3,795,000 P8,250,000) = P345,000.

29. c

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

30. d

P3,500,000 P1,350,000 P1,525,000 = P625,000.

31. b

P240,000 P100,000 = P140,000.

32. 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.

33. c

(P6,325,000 P13,750,000) P1,250,000 = P575,000.

34. a

(P6,325,000 P13,750,000) P1,250,000 = P575,000.

P6,325,000 + P575,000 = P6,900.000.


35. d - P85M costs incurred in 2011 = revenue recognized in 2011. Under the costs recovery (zeroprofit approach) of construction accounting, revenue is recognized up to the extent of costs
incurred as long as it is probable will be recoverable.
36. b - 20x5: P12,000,000 > P11,870,000, No loss;
20x6: P12,000,000 P12,400,000 = P400,000 loss.
37. a - Revenue recognized to the extent of costs incurred
38. c

P3,200,000 P2,150,000 = P1,050,000.

39. c

P1,500,000 P820,000 = P680,000.

40. 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 due from customers.
Under the US FASB, the excess of P200,00 is considered as an inventory account.
41. c
Costs of construction
Construction in progress
Revenue for long-term contracts

1,200,000
800,000
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
42. a
Costs of construction
Profit
Construction In Progress
Less: Progress billings
Excess (Due from customers)

P1,200,000
800,000
P2,000,000
1,500,000
P 500,000

43. b
Costs of construction
Construction in progress
Revenue for long-term contracts

600,000
400,000
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
44. d
Costs of construction
Revenue for long-term contracts

1,200,000
1,2000,000

Under cost recovery method, revenue should be recognized up to the extent of costs
incurred.
45. b
Costs of construction
Profit
Construction In Progress
Less: Progress billings
Excess (Due to customers)

P1,200,000
0
P1,200,000
1,500,000
P( 300,000)

46. d
Costs of construction
Construction in progress
Revenue for long-term contracts

600,000
1,200,000
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.
47. a
Contract price
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Profit (loss)
Multiply by: % of completion
Recognized Gross Profit (Loss) to date
Less: Gross Profit (Loss) in prior year
Recognized Gross Profit (Loss) in current year
% of Completion / Cost Recovery Method:
Construction in Progress

CI
CI

4,920,000
4,680,000
3,720,000
7,920,000

20x4
P 9,600,000
P 4,920,000
4,920,000
P 9,840,000
P(240,000)
100%
P (240,000)
_________
P (240,000)

20x5
P10,080,000
P 8,640,000
2,160,000
P 10,800,000
P (720,000)
100%
P (720,000)
(240,000)
P (480,000)

Progress Billings

240,000 loss

5,280,000
5,280,000
3,420,000

480,000 loss
due to customers
P780,000

8,700,000

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.
48. d
Percentage of Completion:
Contract price..
Cost incurred each year.
Add: Cost incurred in prior year
Costs incurred to date
Add: Estimated costs to compute.
Total estimated costs.

Project 6
P500,000
P375,000
_________
P375,000
________
P375,000

Project 7
P700,000
P100,000
________
P100,000
400,000
P500,000

Project 8
P250,000
P100,000
________
P100,000
100,000
P200,000

Estimated gross profit


Multiply by: percentage of completion.
Recognized gross profit to date
Less: Recognized gross profit in prior years
Recognized gross profit each year.

P125,000
100%
P125,000
_________
P125,000

P200,000
20%
P 40,000
_________
P 40,000

P 50,000
50%
P 25,000
_________
P 25,000

Project 6
P500,000*

Project 7
P100,000

Project 8
P100,000

375,000
P125,000

100,000
P
0

100,000
P
0

Cost Recovery Method of Construction Accounting:

Recognized Revenue....
Less: Costs of long-term construction
contract..
Recognized gross profit each year.

* Since the contract is completed then the full amount of P500,000 contract price should be
recognized as revenue.

Percentage of Completion
Construction in Progress
Pr. 6 - Cl.
375,000 500,000 Pr. 6
Pr. 125,000
Pr. 7 Cl. 100,000
Pr.
40,000
Pr. 8. Cl
100,000
Pr. 100,000
765,000 500,000
12/31
265,000 (d)

Cost Recovery Method of Construction


Construction in Progress
Pr. 6 - Cl.
375,000 500,000 Pr. 6
Pr.
125,000
Pr. 7 CI
100,000
Pr. 8 CI
100,000
700,000 500,000
12/31
200,000 (d)

49. a
Input Measures: Efforts-Expended Method - using timbers laid
Year 2
Timers laid Each Year
300
Add: Timbers laid in Prior Years
150
Timbers laid to date
450
Add: Additional support timbers to be laid
520
Total Estimated Timbers
970
Percentage-of-Completion
45/97
x: CONTRACT PRICE
P 800,000
Recognized Revenue to Date
P 371,134
Recognized Revenue in Prior Years
Recognized Revenue in Current Yr.

Year 3
500
450
950
-0950
100%
P 800,000
P 800,000
371,134
P 428,866

Output Measures Number of trail feet


Trail feet Each Year
Add: Trail fees in Prior Years
Trail feet to date
Add: Additional trail feet to be constructed
Total Estimated Trail feet
Percentage-of-Completion
x: CONTRACT PRICE
Recognized Revenue to Date

Year 2
7,500
3,000
10,500
8,200
18,700
105/187
P 800,000
P 449,198

Year 3
8,000
10,500
18,500
___-018,500
100%
P 800,000
P 800,000

Recognized Revenue in Prior Years


Recognized Revenue in Current Yr.

449,198
P 350,802

50. b
Contract price..
Cost incurred each year.
Add: Cost incurred in prior year
Costs incurred to date
Add: Estimated costs to complete
Total estimated costs.
Estimated gross profit
Multiply by: percentage of completion.
Recognized gross profit to date
Less: Recognized gross profit in prior years
Recognized gross profit each year.

2006
P5,000,000

P 900,000

P 100,000
-0P 100,000

2007
P5,000,000
900,000
P2,550,000
1,700,000
P4,250,000
P 750,000
60%
P 450,000
100,000
P 350,000

2008
P5,000,000
P2,050,000
2,550,000
P4,600,000
-0P4,600,000
P 400,000
100%
P 400,000
450,000
P( 50,000)

51. d refer to No. 50


52. c
Contract Price
Less: Total Estimated Costs
Cost Incurred to Date P26,000,000
Add: Estimated Costs to Complete 25,000,000
Estimated Gross Profit.
Multiplied by: % of completion.
Recognized gross profit to date..
Less: RGP in prior years
Recognized gross profit in current year
Construction-in-progress Account:
Costs incurred to date..
GP in the current year
Less: Progress billings..
Due from customer (net).

P60,000,000
51,000,000
P 9,000,000
30%
P 2,700,000
_________0
P 2,700,000
P 26,000,000
2,700,000
P 28,700,000
5,000,000
P 23,700,000

53. c
Contract Price
Multiplied by: Gross Profit Rate
Estimated Gross Profit of the entire contract
Multiplied by: Percentage of Completion for first year
Gross Profit realized for current year

P100,000,000
_________25%
P 25,000,000
_________50%
P 12,500,000

Contract Price
x: Mobilization Fee
Collection in 20x4
Note: Billings for 20x4 will be collected in January 20x5.

P120,000,000
10%
P 12,000,000

54. c

55. a
Mobilization Fee: 5% x P10M

P 5.0 M

Collection on Billings:
Contract price
x: Progress billings, net of 10% and 8% (50% - 10% - 8%)
Progress billings
x: Collections net of contract retention of 10%
Collections in 20x4

P 100 M
32%
P 32 M
90%

28.8 M
P 33.8 M

56. b 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).
Quiz- VIII
1. P100,000 = [P900,000 (P900,000 + P1,800,000)] P3,000,000 = P1,000,000
P1,000,000 P900,000 = P100,000.
2. P150,000
Contract price
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Profit (loss)
Multiply by: % of completion
Recognized Gross Profit (Loss) to date
Less: Gross Profit (Loss) in prior year
Recognized Gross Profit (Loss) in current year

4,500,000
1,350,000
_2,700,000
4,050,000
450,000
1,350/4,050
150,000
____-0150,000

3. P150,000
Contract price
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Profit (loss)
Multiplied by: % of completion
Recognized Gross Profit (Loss) to date
Less: Gross Profit (Loss) in prior year
Recognized Gross Profit (Loss) in current year

20x5
3,000,000

2,250,000
750,000
300,000

20x6
3,000,000
1,800,000
_600,000
2,400,000
600,000
1,800/2,400
450,000
_300,000
150,000

4. P80,000
Contract price
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Profit (loss)
Multiplied by: % of completion
Recognized Gross Profit (Loss) to date
Less: Gross Profit (Loss) in prior year
Recognized Gross Profit (Loss) in current year

20x5
1,600,000
240,000
_960,000
1,200,000
400,000
240/1,200
80,000
______0
80,000

5. P20,000
Contract price
Costs incurred each year
Add: Cost incurred in prior years
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Profit (loss)
Multiplied by: % of completion
Recognized Gross Profit (Loss) to date
Less: Gross Profit (Loss) in prior year
Recognized Gross Profit (Loss) in current year

20x5
1,400,000
400,000
_____-0400,000
_400,000
800,000
600,000
400/800
300,000
______0
300,000

20x6
1,400,000
400,000
400,000
800,000
200,000
1,000,000
400,000
800/1,000
320,000
300.000
20,000

6. P-0- , Under the cost recovery method, record equal amounts of revenue and cost until cost
recovered, and then record gross profit
7.P240,000 Profit
Contract price
Costs incurred each year
Add: Cost incurred in prior years
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Profit (loss)
Multiplied by: % of completion
Recognized Gross Profit (Loss) to date
Less: Gross Profit (Loss) in prior year
Recognized Gross Profit (Loss) in current year

20x5
4,000,000
960,000
_______0
960,000
3,200,000
800,000
960/3,200
240,000
_______0
240,000

8. P102,000
Contract price
Costs incurred each year
Add: Cost incurred in prior years
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Profit (loss)
Multiplied by: % of completion
Recognized Gross Profit (Loss) to date
Less: Gross Profit (Loss) in prior year
Recognized Gross Profit (Loss) in current year

20x5
850,000
238,000
_______0
238,000
357,000
595,000
255,000
238/595
102,000
_______0
102,000

9. P990,000
Contract price
Costs incurred each year
Add: Cost incurred in prior years
Costs incurred to date*
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Profit (loss)
Multiplied by: % of completion
Recognized Gross Profit (Loss) to date
Less: Gross Profit (Loss) in prior year
Recognized Gross Profit (Loss) in current year

20x5
3,000,000

450,000

20x6
3,000,000
990,000
450,000
1,440,000

2,250,000
750,000
____20%
150,000
______0
150,000

2,400,000
600,000
_____60%
360,000
150.000
210,000

* total estimated costs x % of completion

10. P50,000
20x5
1,500,000
465,000
_______0
465,000
1,085,000
1,550,000
( 50,000)
100%
( 50,000)
_______0
( 50,000)

Contract price
Costs incurred each year
Add: Cost incurred in prior years
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Profit (loss)
Multiplied by: % of completion
Recognized Gross Profit (Loss) to date
Less: Gross Profit (Loss) in prior year
Recognized Gross Profit (Loss) in current year
11. P625,000
Contract price
Costs incurred each year
Add: Cost incurred in prior years
Costs incurred to date
Add: Estimated cost to complete
Total estimated costs
Estimated Gross Profit (loss)
Multiplied by: % of completion
Recognized Gross Profit (Loss) to date
Less: Gross Profit (Loss) in prior year
Recognized Gross Profit (Loss) in current year

20x5
3,500,000
1,350,000
-01,350,000
1,350,000
2,700,000
800,000
-0-0-

20x6
3,500,000
1,525,000
1,350,000
2,875,000
_______0
2,875,000
625,000
___100%
625,000
_______0
625,000

12. P550
Costs Incurred.
Contract price.
Cost incurred each year..
Add: Cost incurred in prior year.
Costs incurred to date..
Add: Estimated costs to complete
Total estimated costs.
Estimated gross profit (loss)..
Multiplied by: percentage of completion..
Construction In Progress account inventory account

400
P2,750
P 400
___-0P 400
_1,600
P2,000
P 750
400/2,000

150
550

13. P1,200,000
The term completed should be cost recovery
Costs Incurred
Contract price.
Cost incurred each year..
Add: Cost incurred in prior year.
Costs incurred to date..
Add: Estimated costs to complete
Total estimated costs.
Estimated gross profit (loss)..
Multiplied by: percentage of completion..
Construction In Progress account inventory account

700,000
P2,000,000
P 700,000
______-0P 700,000
__800,000
P1,500,000
P 500,000
________0

_______0
700,000

20x5
Costs incurred
Contract price.
Cost incurred each year..
Add: Cost incurred in prior year.
Costs incurred to date..
Add: Estimated costs to complete
Total estimated costs.
Estimated gross profit (loss)..
Multiplied by: percentage of completion..
Construction In Progress account inventory account

14. P32,000 = P47,000 P15,000

600,000
P2,000,000
P 600,000
_700,000
P1,300,000)
__800,000
P(2,100,000)
P (100,000)
________0

_(100,000)
1,200,000

15. P782,000
20x5
Costs Incurred
Contract price.
Cost incurred each year..
Add: Cost incurred in prior year.
Costs incurred to date..
Add: Estimated costs to complete
Total estimated costs.
Estimated gross profit (loss)..
Multiplied by: percentage of completion..
Construction In Progress account inventory account

238,000
P850,000
P238,000
______-0P238,000
_357,000
P595,000
P255,000
_238/595

102,000
340,000

20x6
Costs incurred
Contract price.
Cost incurred each year..
Add: Cost incurred in prior year.
Costs incurred to date..
Add: Estimated costs to complete
Total estimated costs.
Estimated gross profit (loss)..
Multiplied by: percentage of completion..
Construction In Progress account inventory account
Less: Progress billings (P260,000 + P210,000)
Construction In Progress account (net) Due from
customers

319,600
P850,000
P319,600
_238,000
P557,600
_139,400
P697,000
P153,000
_557.6/697

_122,400
782,000
470,000
312,000

16. P312,000
17. same with no.16 P312,000
18. (P9,000,000 P8,250,000) (P3,795,000 P8,250,000) = P345,000.
19.P3,795,000 + P345,000 = P4,140,000.
20. P2,750,000
P1,650,000
P5,000,000 = P2,750,000
P3,000,000
21.
22.

Accounts Receivable ...............................................................................


Billings on Construction in Process ...........................................

1,650,000

Construction Expenses .............................................................................


Construction in Process ............................................................................
Revenue from Long-Term Contracts .......................................

1,650,000
1,100,000

23. P875,000
Revenue
Costs
Total gross profit
Recognized in 20x5
Recognized in 20x6
Or
Total revenue
Recognized in 20x5

P5,000,000
3,025,000
1,975,000
(1,100,000)
P 875,000
P5,000,000
(2,750,000)

1,650,000

2,750,000

Recognized in 20x6
Costs in 20x6
Gross profit in 20x6

24.
25.
26.

20x5
20x6
20x7

2,250,000
(1,375,000)
P 875,000

Percentage-of-Completion
Gross Profit
P750,000a
P210,000b
P440,000c

20x5
20x6
20x7

Completed-Contract
Gross Profit

P1,400,000d

aP1,500,000

P2,000,000 =
P4,000,000

P750,000

bP2,640,000

P1,600,000 =
P4,400,000

P960,000

Less 20x5 gross profit


20x6 gross profit

(750,000)
P210,000

cTotal

revenue
Total costs
Total gross profit
Recognized to date
20x7 gross profit

dTotal

revenue
Total costs
Total gross profit

P6,000,000
4,600,000
1,400,000
(960,000)
P 440,000
P6,000,000
4,600,000
P1,400,000

27. P312,500
Revenue

= [P250,000/(P250,000 + P750,000)]
P1,250,000
= P312,500
Gross profit = P312,500 P250,000 = P62,500
Construction in progress = P250,000 + P62,500 = P312,500

28. P125,000
(2)
Current Assets
Inventories
Construction in progress*
P1,000,000
Less: Partial billings**
(875,000)
Costs and recognized profit not
P 125,000
yet billed
*Revenue to date = (P250,000 +
P600,000)/(P250,000 + P600,000 +
P212,500) 1,250,000 = P1,000,000
Construction in progress = P250,000 +
P600,000 + P150,000 = P1,000,000
**Partial billings = P375,000 + P500,000 =
P875,000

29. P60,00
Revenue to date
Revenue from previous periods
Revenue for 20x7
Costs incurred in 20x7
Gross profit for 20x7

P1,250,000
_1,000,000
P 250,000
_ 190,000
P 60,000

THEORIES
1.
2.
3.
4.
5.

36.

False
True
True
False
False

6.
7.
8.
9.
10,

False
False
False
True
False

11.
12.
13.
14.
15,

False
True
False
True
False

16.
17.
18.
19.
20.

True
False
True
False
True

21.
22.
23.
24.
25.

True
False
False
False
False

26.
27.
28.
29.
30.

True
True
False
False
True

31.
32.
33.
34.
35.

37.
38.
39.
40.

False
True
True
False
False

41.

46.

51.

56.

61.

66.

42.
43.
44.
45.

47.
48.
49.
50.

52.
53.
54.
55.

b
c
b

57.
58.
59.
60.

62.
63.
64.
65.

b
a
c
d

67.
68.
69.
70.

b
c
b

c
a

c
c

d
C

False
False
True
False
True