7/23/2019 Chapter 08 dayag http://slidepdf.com/reader/full/chapter-08-dayag 1/24 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: P 1,800,000 Contract price Costs incurred: 2008 P 450,00 2009 1,100,000 Total cost 1,550,000 Total gross profit 250,000 Recognized in 2008 40,905 Recognized in 2009 P 209,095 2. Input Measure - Cost Recovery Method 2008: (all costs not yet recovered) P -0- 2009: Contract price 1,800,00 Costs incurred: 2008 P 450,000 2009 1,100,000 Total cost 1,550,000 Total gross profit P 250,000 Problem II 1. Input Measure - Percentage of Completion Method (Cost to cost Method) Years Gross Profit (or Loss) recognized Supporting computations 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
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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 1,200,000Total 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: P 1,800,000
Contract price
Costs incurred:
2008 P 450,00
2009 1,100,000
Total cost 1,550,000Total gross profit 250,000
Recognized in 2008 40,905
Recognized in 2009 P 209,095
2. Input Measure - Cost Recovery Method
2008: (all costs not yet recovered) P -0-
2009:
Contract price 1,800,00
Costs incurred: 2008 P 450,000
2009 1,100,000
Total cost 1,550,000
Total gross profit P 250,000
Problem II
1. Input Measure - Percentage of Completion Method (Cost to cost Method)
Years Gross Profit (or Loss)recognized
Supporting computations
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
Years Gross Profit (or Loss) Supporting computations
2008 P -0- ( P108 – 90) = P18 anticipated grossprofit, so no need to recognized agross loss
2009 (P 12 million) Total loss is ( P108 – 120) = (12 million)
2010 P 10 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:20x3 20x4 20x5
Contract price:
Initial amount of contract…………... P528,000 P528,000 P528,000
Total contract price…………………….. P528,000 P540,000 P540,000
Costs incurred each year……………… P 126,048 *P244,032 P121,920
Add: Costs incurred in prior years……. _______- _126,048 _370,080
Actual costs incurred to date (1)…..… P126,048 *P370,080 P492,000
Add: Estimated costs to complete….. _358,752 _121,920 _______-
Total estimated costs (3)……..………… P484,800 P492,000 P492,000
Estimated gross profit…………………… P 43,200 P 48,000 P 48,000
Percentage of completion (1) / (3) 26% **74% 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 To dateRecognized in
prior yearsRecognized incurrent year
Revenue (P528,000 x 26%) P 137,280 - P 137,280
Costs/Expenses (P484,800 x 26%) 126,048 - 126,048
Gross Profit (P43,200 x 26%) P 11,232 - P 11,232
20x4 To dateRecognized in
prior yearsRecognized incurrent year
Revenue (P540,000 x 74%) P 399,600 P 137,280 P 262,320
Costs/Expenses (P492,000 x 74%) _364,080 _126,048 238,032
Gross Profit (P48,000 x 74%) P 35,520 P 11,232 P 24,288
20x5 To dateRecognized in
prior yearsRecognized incurrent year
Revenue (P540,000 x 100%) P 540,000 P 399,600 P 140,400
Costs/Expenses (P492,000 x 100%) _492,000 _364,080 _127,920
Gross Profit (P48,000 x 100%) P 48,000 P 35,520 P 12,480
Alternatively, the gross profit recognized each year may also be computed as follows:20x3 20x4 20x5
Current Liability:Payables (“Payments on Account”) Progress billings……………………………… P 137,280 P384,000Less: Construction In Progress……………. _144,000 _364,080Gross amount due to customers………… P 6,720 P 19,920
Construction In Progress Progress Billings
20x3 CI 126,048 144,000 20x3Pr 0
end of x3 126,048 144,000 end of x320x4 CI 238,032 240,000 20x4
Pr 0
end of x4 364,080 384,000 end of x420x5 CI 127,920 156,000 20x5
Pr 48,000
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)20x3 20x4 20x5
Revenue……………………………………… P 137,280 P 262,320 P 140,400
Billings on construction (y) : P14 + P 46 = P60 P60million
Net billings in excess of construction in progress (z): Billings of P60 – CIP of
P50
P10 million
Calculate the percentage of PAC that was completed during 2009:
50/150 = 33.33% 333.33%
Problem VI
Item to compute Answer
Cash collected by KP on Cincy One during 2009. (P75 billings – P10 A/R) P65 million
Actual costs incurred by KP on Cincy One during 2009 (P66 CIP – P22gross pofit)
P44 million
At 12/31/2009, the estimated remaining costs to complete Cincy One(44/{44 + x})(300 – {44 + x}) = 22; x = 156
P156 million
The percentage of Cincy One that wa completed during 2009 100 x (44/
{44 + 156})
22%
Problem VII
1.Progress billings on construction contract P562,000Less accounts receivable 150,500Cash collected in 20x4 P411,500
2.Gross profit from construction contract + Construction in progress = Revenue for 20x4P301,000 + P602,000 = P903,000P903,000/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 20x5 20x6Contract price ................... P250,000 P250,000 P250,000Current year costs ............... 110,000 120,000 15,000Costs to date .................... 110,000 230,000 245,000Estimated cost to complete ....... 100,000 20,000 0Estimated total cost ............. 210,000 245,000 240,000Estimated total gross profit ..... 40,000 5,000 5,000Percent complete ................. 52% 94% 100%Revenue to date .................. P130,000 P230,000 P250,000
To Date Previous Currentat Dec. 31 Years Year
20x4: Revenue P130,000 P130,000Costs (110/210 x 210) 110,000 110,000Gross profit P 20,000 P 20,000
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. bP7,200,000
——————————— x (P15,000,000 – P12,000,000) = P1,800,000.P7,200,000 + $4,800,000
3. cP1,170,000
————— - x (P3,300,000 – P1,950,000) = P810,000P1,950,000
(P3,300,000 – P2,010,000) – P810,000 = P480,000.
4. dUnder the percentage of completion method, the Construction-In-Progress account is usedfor cost incurred during the year and any realized gross profit (loss). The following T-account isprepared:
Construction-In-ProgressCI in 2004 210,000RGP in 20x4 (?) 34,000
End of 20x4 244,000CI in 20x5 384,000RGP in 20x5 (?) 100,000
End of 20x5 728,000
5. b P1,200,000
————— x (P7,200,000 – P4,800,000) = P600,000.P4,800,000
6. c P7,200,000 – P4,875,000 =P2,325,000.
7. a20x4
Contract Price P4,800,000 x: Percentage-of-completion _______75%Recognized Revenue to date P3,600,000Less: Costs incurred to date P3,400,000Gross Profit to date P 200,000Less: GP in prior year _______-0-Gross profit in current year P 200,000
8. a P3,600,000 ————— x (P8,400,000 – P6,000,000) = P1,440,000.P6,000,000
11. a - Gross profit is recognized in the year of sale, 20x4; therefore, in 20x6 no gross profit shouldbe 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 P6,000,000Less: Total Estimated Costs
Costs Incurred-1/10/x4 to 12/31/x5 P3,600,000Add: Estimated costs to complete 1,200,000 4,800,000
Less: Costs incurred to date P1,200,000Multiplied by: % of completion ___3.6/4.8Gross Profit to date P 900,000Less: GP in prior year (given) ___600,000Gross profit in current year P 300,000
14. b20x4: Cost to date – P7,500,000 x 20% P1,500,00020x5: Cost to date – P8,000,000 x 60% 4,800,000
35. d - P85M costs incurred in 2011 = revenue recognized in 2011. Under the costs recovery (zero-profit approach) of construction accounting, revenue is recognized up to the extent of costsincurred 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. aUnder 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.
Costs of construction P1,200,000Profit 800,000Construction In Progress P2,000,000Less: Progress billings 1,500,000Excess (Due from customers) P 500,000
43. bCosts of construction 600,000
Construction in progress 400,000
Revenue for long-term contracts 1,000,000
Total revenue P3,000,000 revenue previously recognized P2,000,000 = Revenue torecognize this year P1,000,000.
Under cost recovery method, revenue should be recognized up to the extent of costsincurred.
45. bCosts of construction P1,200,000Profit 0
Construction In Progress P1,200,000Less: Progress billings 1,500,000Excess (Due to customers) P( 300,000)
46. dCosts of construction 600,000
Construction in progress 1,200,000
Revenue for long-term contracts 1,800,000
Under the cost recovery method, record equal amounts of revenue and cost until costrecovered, 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 20x4 20x5
Contract price P 9,600,000 P10,080,000
Costs incurred to date P 4,920,000 P 8,640,000
Add: Estimated cost to complete 4,920,000 2,160,000
Total estimated costs P 9,840,000 P 10,800,000
Estimated Gross Profit (loss) P(240,000) P (720,000)
Multiply by: % of completion 100% 100%
Recognized Gross Profit (Loss) to date P (240,000) P (720,000)
Less: Gross Profit (Loss) in prior year _________ (240,000)
Recognized Gross Profit (Loss) in current year P (240,000) P (480,000)
% of Completion / Cost Recovery Method:Construction in Progress Progress Billings
CI 4,920,000 240,000 loss 5,280,000
4,680,000 5,280,000CI 3,720,000 480,000 loss 3,420,000
7,920,000 8,700,000due to customers
P780,000
Note: If there is an anticipated loss, the Construction-in-Progress for both methods willexactly be the same in the year the loss was incurred.
48. d
Percentage of Completion: Project 6 Project 7 Project 8
Cost incurred each year………………. P2,050,000Add: Cost incurred in prior year……… 900,000 2,550,000
Costs incurred to date………………… P 900,000 P2,550,000 P4,600,000
Add: Estimated costs to complete 1,700,000 -0-
Total estimated costs…………………. P4,250,000 P4,600,000
Estimated gross profit………………… P 750,000 P 400,000
Multiply by: percentage of completion. 60% 100%
Recognized gross profit to date……… P 100,000 P 450,000 P 400,000
Less: Recognized gross profit in prior years -0- 100,000 450,000
Recognized gross profit each year…. P 100,000 P 350,000 P( 50,000)
51. d – refer to No. 50
52. cContract Price……………………………………………… P60,000,000Less: Total Estimated Costs
Cost Incurred to Date……………………………… P26,000,000 Add: Estimated Costs to Complete……………… 25,000,000 51,000,000
Estimated Gross Profit……………………………………. P 9,000,000Multiplied by: % of completion…………………………. 30%Recognized gross profit to date……………………….. P 2,700,000Less: RGP in prior years…………………………………… _________0Recognized gross profit in current year ……………… P 2,700,000
Construction-in-progress Account:Costs incurred to date………………………………….. P 26,000,000GP in the current year…………………………………… 2,700,000
P 28,700,000Less: Progress billings…………………………………….. 5,000,000Due from customer (net)………………………………. P 23,700,000
53. cContract Price P100,000,000Multiplied by: Gross Profit Rate _________25%Estimated Gross Profit of the entire contract P 25,000,000Multiplied by: Percentage of Completion for first year _________50%Gross Profit realized for current year P 12,500,000
54. cContract Price P120,000,000 x: Mobilization Fee 10%Collection in 20x4 P 12,000,000Note: Billings for 20x4 will be collected in January 20x5.
Construction In Progress account (net) – Due fromcustomers 312,000
16. P312,00017. same with no.16 – P312,00018. (P9,000,000 – P8,250,000) (P3,795,000 ÷ P8,250,000) = P345,000.19.P3,795,000 + P345,000 = P4,140,000.
20. P2,750,000P1,650,000
————— × P5,000,000 = P2,750,000P3,000,000
21. Accounts Receivable ............................................................................... 1,650,000Billings on Construction in Process ........................................... 1,650,000
22. Construction Expenses ............................................................................. 1,650,000Construction in Process ............................................................................ 1,100,000
Revenue from Long-Term Contracts ....................................... 2,750,000
23. P875,000Revenue P5,000,000Costs 3,025,000Total gross profit 1,975,000Recognized in 20x5 (1,100,000)Recognized in 20x6 P 875,000
OrTotal revenue P5,000,000Recognized in 20x5 (2,750,000)