IMUS INSTITUTE

SY 2015- 2016

PRACTICAL ACCOUNTING II SPECIAL REVENUE RECOGNITION – LONG TERM

CONSTRUCTIONS CONTRACTS

PROBLEM 1

In 2013, DJ Builders Construction agreed to construct an apartment building at a price of P2,000,000. The
information relating to the costs and billings for the contract is as follows:

2013 2014 2015

Costs incurred to date 560,000 1,200,000 1,570,000
Estimated costs yet to be incurred 1,040,000 400,000 -
Customer billings each year 750,000 560,000 690,000
Collection of billings each year 560,000 640,000 700,000

Determine the following:

1. Using Percentage-of-completion Method- for the year ended December 31, 2013, 2014 and 2015
a. Current assets, cost and profits in excess of billings (gross amount due from customers)
b. Current liability, billings in excess of cost and profits (gross amount due to customers)
c. Current asset, contract amount in excess of billings
d. Current asset, deferred profit
e. Construction –In-Progress Account
f. Contract Billings
g. Recognize revenue
h. Construction Costs
i. Gross Profit
2. Using Cost Recovery Method/ Zero-profit Approach - for the year ended December 31, 2013, 2014
and 2015
j. Current assets, cost and profits in excess of billings (gross amount due from customers)
k. Current liability, billings in excess of cost and profits (gross amount due to customers)
l. Current asset, contract amount in excess of billings
m. Current asset, deferred profit
n. Construction –In-Progress Account
o. Contract Billings
p. Recognize revenue
q. Construction Costs
r. Gross Profit

PROBLEM 2

On February 01, 2013, JJD Construction Company obtained a contract to build an athletic stadium. The stadium
was to be built at a total cost of P10,800,000 and was scheduled for completion by September 01, 2011. One
clause of the contract stated that JJD was to deduct P30,000 from the P13,200,000 billing for each week that
completion was delayed. Completion was delayed six weeks, which resulted in a P180,000 penalty. Below are the
data pertaining to the construction period.

2013 2014 2015

Costs incurred each year 3,664,000 * 4,136,000 3,200,000
Estimated costs to complete 7,136,000 3,200,000 -
Progress billings each year 3,600,000 5,900,000 3,520,000
Cash collection to date 3,600,000 9,400,000 13,020,000
Operating expenses 200,000 180,000 140,000
*including cement materials stored amounting to P100,000 that is held offsite to be used in 2015 to complete the
project.

For each year show how the details related to this contract would be disclosed on the balance sheet and on the
income statement:

1. Using Percentage-of-completion Method

a. Construction –In-Progress Account
b. Net income
c. Recognize revenue
d. Construction Costs
e. Gross Profit
2. Using Cost Recovery Method/ Zero-profit Approach

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 a. Construction –In-Progress Account
b. Net income
c. Recognize revenue
d. Construction Costs
e. Gross Profit

PROBLEM 3

On July 01, 2013, GB Construction Corp. Contracted to build an office building for RX, Inc. For a total contract price
of P1,825,000

2013 2014 2015

Contract cost incurred 350,000 930,000 670,000
Estimated costs to complete 1,050,000 6,850,000 -
Billings to RX, Inc 192,500 1,420,000 212,500

Determine the following:

a. Inventory account, net at December 31, 2014, assuming no dependable estimates are available
b. Inventory account, net at December 31, 2014, using cost to cost method
c. Recognized revenue or loss in 2013, 2014 & 2015 using zero profit method
d. Gross Profit using percentage of completion method

PROBLEM 4

DM , Inc. Works on a P10,500,000 contract in 2015 to construct an office building. During 2015, DM, Inc uses the
cost to cost method. At December 31, 2015, the balances in certain accounts were: Construction In Progress –
P3,780,000 ; accounts receivable – P360,000 ; billings on construction in progress P1,800,000 ; contract retention –
P180,000 : mobilization fee – P140,000 . At December 31, 2015, the estimated cost at completion is P7,350,000.

How much is the realized gross profit in 2015?

PROBLEM 5

On January 01, 2013, Brave Construction Corp. Began constructing a P2,100,000 contract. The following are
relevant information provided by the corporation. Brave uses percentage of completion method. For the year
ended December 31, 2014, Brave Construction billed its client an additional 55% of the contract price.

2013 2014 2015

Construction in Progress 441,000 ? ?
Estimated costs to complete ? ? -
Cost incurred 425,250 969,000 675,750
Excess of Construction in Progress over P84,000 current P330,750 current
Billings liabilty liabilty -

Determine the following:

a. Estimated remaining cost in 2013

b. Realized gross profit (loss) in 2014
c. Construction in progress in 2014

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