RECOGNITION OF CONTRACT REVENUE AND EXPENSES

When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs
associated with the construction contract shall be recognized as revenue and expenses respectively by
reference to the stage of completion of the contract activity at the reporting date. However, as the outcome
of the contract cannot be estimated reliably, no profit is recognized.

COST RECOVERY (ZERO PROFIT) METHOD

This method is used reasonable estimate of the percentage of completion cannot be made. Under this
method, revenue is recognized each year in an amount exactly equal to costs incurred until reasonable
estimates of the percentage of completion is available. The total gross profit on the project is recognized in
the year of completion of the project.

PERCENTAGE OF COMPLETION METHOD

Under this method, profit is recognized at end of each accounting period based on the percentage Of
completion of the project. The percentage of completion is usually computed by dividing the cost incurred to
date by the total estimated cost to complete the project.

In practice, various procedures are used to measure the extend of progress toward completion under the
percentage of completion method.

INPUT MEASURES

Input measures are made in relation to the costs or efforts devoted to a contract. They are based on an
established or assumed relationship between a unit of input and productivity. They include the widely
used cost-to-cost method which is based on assumed relationship between a unit of input and
productivity

Under the cost-to-cost method, the degree of completion is determined by comparing costs already
incurred with the most recent estimates of total expected costs to complete the project. The percentage
that costs incurred bear to total expected costs is applied to the expected net income on the project in
arriving earnings to date.

OUTPUT MEASURES

Output methods are made in terms of results achieved. This category includes methods based on units
produced, contract milestones reached and values added. Thus, the measure of completion may be the
ratio of the units produced to the total units stated in the contract.

The formula to compute the gross profit to be recognized each year is as follows:

Contract price
Less: Total estimated costs
Cost incurred to date (A) P xxx
Estimated cost to complete xxx
 Total estimated cost (B)
Estimated gross profit
Multiply by percentage of completion (A / B)
Gross profit earned to date
Less: Gross profit earned in prior year (s)
Gross profit earned this year

Once the percentage of completion is known, the following alternative formula may be used.

Contract price
Multiply by the percentage of completion
Value of contract earned
Less: Cost incurred to date
Gross profit earned to date
Less: Gross profit earned in prior year (s)
Gross profit earned this year

Cost incurred to date. These include precontract costs and costs incurred after contract acceptance.
Precontract costs include costs of architectural designs, cost of securing the contract and any other costs
that are expected to be recovered if the contract is accepted

Estimated costs to complete. These are the anticipated cost of materials, labor subcontracting costs, and
indirect costs (overhead) required in completing the project at a scheduled time.

Cost of Materials purchased in Advance of their Use

Construction materials purchased several weeks or months before they are actually use in constructions
should not be treated as costs incurred for purposes of computing the percentage of completion ratio until
the materials have been physically used in production unless they are specifically purchased for the project.

Anticipated Loss on Long Term Construction Projects

In cases, the total estimated costs may increased due to in the costs of materials. While the increase in the
total estimated costs may result in a loss in year the estimated cost increased, the entire contract will still
result in a profit. Sometimes however, an increase in total estimated costs is so great that a loss on the entire
contract is anticipated; that is, total estimated costs exceeds the total revenue from contract. When a loss is
anticipated, PAS No. 26 "Construction Contracts" require reporting the loss in its entirety when the loss is first
anticipated.

Construction in Progress in Excess of Billings/Billings in Excess of Construction in Progress

This represents the difference between the Construction in Progress (CIP) account and the Contract Billings
as shown below:

Construction in Progress
Less: Contract Billings
 CIP in excess of billings (current asset)

Billings in excess of CIP (current liability)

Under the zero profit method, the Construction in Progress account before the year of completion is debited
for the costs incurred to date. In the year of completion the Construction in Progress account is debited for
the cost incurred and gross profit earned on the project.

On the other hand, under the percentage of completion method, the Construction in Progress account is
debited every year for the costs incurred and gross profit earned each year. In the year of completion, the
balance of Construction in Progress account is closed to the Contract Billings account which have the same
balance.

Accounting for Change Order

Change Orders are modifications of an original contract. Contract revenue and costs should be adjusted to
reflect change orders that are approved by the contractor and customer.
ct revenue and contract costs
xpenses respectively by
te. However, as the outcome

ot be made. Under this

ncurred until reasonable
the project is recognized in

on the percentage Of
by dividing the cost incurred to

ward completion under the

ontract. They are based on an

vity. They include the widely
n a unit of input and

by comparing costs already

te the project. The percentage
net income on the project in

udes methods based on units

ure of completion may be the

P xxx
 xxx
P xxx
%
P xxx
xxx
P xxx

may be used.

P xxx
%
P xxx
xxx
P xxx
xxx
P xxx

contract acceptance.
ntract and any other costs

subcontracting costs, and

e.

ually use in constructions

age of completion ratio until
ly purchased for the project.

s. While the increase in the

he entire contract will still
great that a loss on the entire
rom contract. When a loss is
s entirety when the loss is first

in Progress

unt and the Contract Billings

P xxx
xxx
 P xxx

P xxx

year of completion is debited

gress account is debited for

tion in Progress account is

he year of completion, the
count which have the same

costs should be adjusted to

 Builders constructi0n Corp. signed a contract to build a five-level apartment over a period of two years, and with th
signed a maintenance contract for five years. Both contracts are negotiable as a single package closely interrelated
two contracts should be
1.

a. Combined and treated as a single contract.

b. Segmented and considered as two separate contracts.
c. Recognized under the completed contract method.
Treated differently. The building under the completed contract method and the maintenance contract un
d. of completion method.

2. The Hogbean Co. is a construction company that has the following costs on its contracts:

A Project managers' costs

B Destruction of an existing building
C Restoration of an old factory

According to PAS Il, Construction Contracts, which costs may be included within contract costs?

a. Cost (A) and cost (B) only c.

b. Cost (A) and cost (C) only d.

3. Contract costs of a construction contract comprise all of the following, except

a. Costs that directly relate to the specific contract.

b. Costs that are attributable to contract activity in general and can be allocated to the contract.
c. Such other costs that are specifically chargeable to the customer under the terms of the contract
d. General administration costs for which reimbursement is not specified in the contract.

The measurement of contract revenue is affected by a variety of uncertainties that depend on the outcome of futu
4. statement is incorrect?

a. A contractor and a customer may agree on variations and claims that increase or decrease contract revenue s
b. The amount of revenue agreed in fixed price contract may increase as a result of cost escalation clause.
c. The amount of revenue may increase as arising from delays caused by the contractor in the completion o
When a fixed price contract involves a fixed price per unit of output, contract revenue increases as the nu
d. increased.

5. Contract revenue in construction contract comprise

a. The initial amount of revenue agreed in the contract only.

b. Variation in contract work, claims and incentive payment only.
c. The initial amount of revenue agreed in the contract, variation in contract work, claim and incentive paym
d. The initial amount of revenue agreed in the contract and progress billings.

The Donovan Co.. is nearing completion of a construction contract. The work has not gone to plan due to the issue
6.
 The Client has requested a variation in the contract by requiring new security devices to be fitted, at an a
Donovan of P1,000,000. The client has accepted responsibility for these additional costs even though the
I. originally agreed.
Donovan has carried out additional work on the contract as there had been building errors. This cost P2,5
II. client refuses to accept responsibility.

Which, if either, of the above issues should be included in contract revenue according to PAS I l, Construction Contr

a. Neither issue I nor issue II c.

b. Issue I only d.

According to PAS I l, Construction Contracts, which of the following projects undertaken by an entity should be acc
7. construction contract?

a. An item of plant and machinery being constructed to be sold as inventory.

b. An office block being constructed as an investment property.
c. A warehouse being constructed for the entity's own use.
d. A large boat being constructed for a third party under a specifically negotiated contract.

The Palace Co., a construction company, has December 31 year end. It is to build a factory for a client and has sche
8. follows:

20-Mar-16 Contract to be awarded and signed.

25-Apr-16 Construction work to commence.
27-Nov-16 Principal construction work to be completed.
30-Dec-16 Final completion of contract.
In accordance with PAS 11 Construction Contracts, the maximum expected period over which the costs attributabl
should accumulated is

a. March 20, 2016 to December 30, 2016 c.

b. April 25, 2016 to November 27, 2016 d.

Under PAS 11, Construction contracts, when it is probable that total contract costs on a fixed price contract will exc
9. revenue, the expected loss should be

a. Set off against profits on other contracts where available.

b. Recognized as an expense immediately, unless revenue to date exceed costs to date.
c. Apportioned to the years of the contract according to the stage of completion method.
d. Recognized as an expense immediately.

A building contractor has a contract to construct a large building. It is estimated that the building will take 2 years to
10. billings will be sent to the custorner at quarterly intervals.

Which of the following describes the preferable point for revenue recognition for this contract?

a. After the contract is signed. c.

b. As progress is made toward completion of the contract. d.

How should the balances of progress billings and construction in progress be shown at reporting dates prior to the
11. long-term contract?
 a. Progress billings as deferred income, construction in progress as as deferred expense
b. Progress billings as income, construction in progress as inventory.
c. Net, as current asset if debit balance and current liability if credit balance.
d. Net, as income from construction if credit balance, and loss from construction if debit balance.

12. The percentage of completion method that may be used to account for construction contracts can be justified on t

a. The contractor will be continuously working and therefore earning revenue.

In most long-term construction projects, payments are made periodically throughout the life of the contr
b. revenue to be recognized.
c. It is unreasonable to expect a contractor to record revenue only when construction is completed.
d. The contracting firm has a basis for measuring completion at particular interim dates.

In the case of a fixed price contract, PAS 11, Construction Contracts, specifies four conditions that must all be met in
13. percentage of completion method to be applied. These conditions include:

a. Costs related to the contract can be clearly identified and measured reliably.
b. It is probable that the economic benefits arising from the contract will flow to the contractor.
c. The entity commissioning the work has a good credit rating and is able to pay its debt.
Costs related to the contract can be clearly identified and measured reliably and it is probable that the ec
d. arising from the contract will flow to the contractor.

14. The percentage of completion of a construction contract is based on all of the following, except

a. The proportion that contract costs incurred for work performed to date bear to the estimated total contr
b. Survey of work performed.
c. Completion of a physical proportion of the contract work.
d. Progress payments and advances received from customers.

The calculation of the income recognized in the third year of a 5-year construction contract accounted for using the
15. completion method includes the ratio of

a. Total costs incurred to date to total estimated costs. c.

b. Total costs incurred to date to total billings to date. d.

The Tiger Co. has entered into a 5-year fixed price construction contract to build a factory. The contract value is P20
estimated costs are P16,000,000. At the end of the first year, Tiger can estimate the outcome of the contract reliab
cash payments to the value of P8,600,000 and incurred costs of P6,000,000. At the end of the first year, what amou
recognized as revenue in the financial statements, according to PAS 11, Construction Contracts?
16.

a. ₱ 3,200,000 c.
b. ₱ 7,500,000 d.

17. The Thing Co. has just completed a 4-year contract to which the following relate:

Labor and materials costs

Machinery cost
Initial design costs
Disposal proceeds of machinery
 What are the total contract costs, according to PAS 11, Construction Contract?

a. ₱ 2,350,000 c.
b. ₱ 1,900,000 d.

Cord Builders, Inc. has consistently used the percentage of completion method of accounting for construction type
2016, Cord started work on a P9.000.000 fixed price construction contract that was completed in 2018. Cord's acco
18. disclosed the following:

Cumulative contract costs incurred

Estimated total cost at completion

How much income would Cord have recognized on this contract for the year ended December 31, 2017?

a. ₱ 100,000 c.
b. ₱ 300,000 d.

Mill Construction Co. uses the percentage of completion method of accounting. During 2016, Mill contracted to bu
complex for Drew for P20,000,000. Mill estimated that total costs would amount to P 16,000,000 over the period o
connection with this contract, Mill incurred P2,000,000 of construction cost during 2016. Mill billed and collected P
Drew in 2016.
19.

What amount should Mill recognize as gross profit for 2016?

a. ₱ 250,000 c.
b. ₱ 375,000 d.

20. The following data relate to a construction job started by Worthington Co. during 2016:

Total contract price

Actual costs incurred during 2016
Estimated remaining costs
Billed to customer during 2016
Received from customer during 2016

Under the percentage of completion method, 'how much should Worthington recognize as gross profit for 2016?

a. P 0 c.
b. ₱ 40,000 d.

C & J Construction, Inc. consistently used the percentage of completion method of recognizing income. Last year C
on a P4,500,000 construction contract, which was completed this year. The accounting records disclosed the follow
year:
21.

Progress billings
Cost incurred
Collections
Estimated cost to complete

How much revenue should C & J recognize on this contract last year?
 a. ₱ 105,000 c.
b. ₱ 150,000 d.

Excellent Co., a construction company, uses the percentage of completion method. In 2016, Excellent began work o
22. construct an office building for P1,100,000 and it was completed in 2017. Data on the cost are:

Cost incurred
Estimated cost to complete

For the years 2016 and 2017, Excellent should recognize gross profit of

2016 2017
a. P 0 ₱ 430,000 c.
b. ₱ 258,000 ₱ 172,000 d.

High Rise Corp. has entered into a very profitable fixed-price contract for constructing a condominium building ove
years, with a total estimated cost of P18 million. It incurs the following costs relating to the contract during the firs
construction:
23.

Materials
Site labor costs
Agreed administration costs as per contract to be reimbursed by the customer
Depreciation of the plant used for the construction
Marketing costs for selling condo units when they are ready for occupancy

What is the percentage of completion of this contract?

a. 33.33% c.
b. 27% d.
 apartment over a period of two years, and with this contract also
negotiable as a single package closely interrelated to each other. The
A

contract method and the maintenance contract under the percentage

g costs on its contracts: D

ncluded within contract costs?

Cost (B) and cost (C) only

Cost (A), cost (B) and cost (C)

wing, except D

al and can be allocated to the contract.

customer under the terms of the contract
is not specified in the contract.

uncertainties that depend on the outcome of future events. Which

C
d claims that increase or decrease contract revenue subsequently.
may increase as a result of cost escalation clause.
elays caused by the contractor in the completion of the contract.
nit of output, contract revenue increases as the number of units is

ariation in contract work, claim and incentive payment.

nd progress billings.

t. The work has not gone to plan due to the issues outlined below:
B
requiring new security devices to be fitted, at an additional cost to
nsibility for these additional costs even though they were not

ct as there had been building errors. This cost P2,500,00 and the

ct revenue according to PAS I l, Construction Contracts?

Issue II only
Both issue I and issue II

ng projects undertaken by an entity should be accounted for as a

D
e sold as inventory.

a specifically negotiated contract.

nd. It is to build a factory for a client and has scheduled its work as
D

ork to be completed.

expected period over which the costs attributable to the contract

April 25, 2016 to December 30, 2016

March 20, 2016 to November 27, 2016

tal contract costs on a fixed price contract will exceed total contract
D

to date exceed costs to date.

he stage of completion method.

t is estimated that the building will take 2 years to complete. Progress

B
e recognition for this contract?

As cash is received.
When the contract is completed.

progress be shown at reporting dates prior to the completion of a

C
 ogress as as deferred expense

ty if credit balance.
d loss from construction if debit balance.

nt for construction contracts can be justified on the basis that: D

ore earning revenue.
made periodically throughout the life of the contract allowing

nue only when construction is completed.

tion at particular interim dates.

s, specifies four conditions that must all be met in order for the
include: D
nd measured reliably.
he contract will flow to the contractor.
ating and is able to pay its debt.
nd measured reliably and it is probable that the economic benefits

on all of the following, except D

erformed to date bear to the estimated total contract costs.

year construction contract accounted for using the percentage of

A
Costs incurred in year 3 to total estimated costs.
Costs incurred in year 3 to total billings to date.

ntract to build a factory. The contract value is P20,000,000 and the

r can estimate the outcome of the contract reliably. It has received
6,000,000. At the end of the first year, what amount should be
AS 11, Construction Contracts?
B
₱ 6,000,000
₱ 8,600,000

ollowing relate: C
₱ 1,800,000
600,000
100,000
50,000
on Contract?

₱ 2,450,000
₱ 2,500,000

etion method of accounting for construction type contracts. During

contract that was completed in 2018. Cord's accounting records
A
December 31
2016 2017
₱ 3,900,000 ₱ 6,300,000
7,800,000 8,100,000

or the year ended December 31, 2017?

₱ 600,000
₱ 700,000

of accounting. During 2016, Mill contracted to build an apartment

would amount to P 16,000,000 over the period of construction. In
uction cost during 2016. Mill billed and collected P3,000,000 from
C

₱ 500,000
₱ 600,000

ngton Co. during 2016: B

₱ 300,000
60,000
120,000
90,000
30,000

Worthington recognize as gross profit for 2016?

₱ 80,000
₱ 100,000

letion method of recognizing income. Last year C & J started work

year. The accounting records disclosed the following data for last
B
₱ 1,650,000
1,350,000
1,050,000
2,700,000
 ₱ 300,000
₱ 350,000

mpletion method. In 2016, Excellent began work on a contract to

in 2017. Data on the cost are: C
December 31, 2016 December 31, 2017
₱ 390,000 ₱ 280,000
260,000

2016 2017
₱ 270,000 ₱ 160,000
₱ 270,000 ₱ 430,000

ract for constructing a condominium building over a period of three

owing costs relating to the contract during the first year of
A
₱ 2,500,000
2,000,000
bursed by the customer 1,000,000
500,000
eady for occupancy 1,000,000

25%
39%
1. The following data pertains to Bell Co.'s construction jobs, which commenced during 2016.

Contract price
Costs incurred during 2016
Estimated costs to complete
Billed to customers during 2016
Received from customers during 2016

What amount of gross profit (loss) would Bell report in 2016 under the zero profit method and the percentage-of-completi

Zero profit Percentage of completion

a. ₱ (20,000) ₱ 20,000 c.
b. ₱ 20,000 ₱ (20,000) d.

Lake Construction Company has consistently used the percentage-of-completion method of recognizing income. Du
entered into a fixed-price contract to construct an office building for P10,000,000. Information relating to the contra
2.

Percentage of completion
Estimated total cost at completion
Income recognized (cumulative)

Contract costs incurred during 2016 were

a. ₱ 3,200,000 c.
b. ₱ 3,300,000 d.

Hansen Construction, Inc. has consistently used the percentage-of-completion method ofrecognizing income. Durin
started work on a P3,000,000 fixed-priceconstruction contract. The accounting records disclosed the following data
3. December 3 1, 2016:

Costs incurred
Estimated cost to complete
Progress billings
Collections

How much loss should Hansen have recognized in 2016?

a. ₱ 230,000 c.
b. ₱ 100,000 d.

Marr Construction Company has consistently used the percentage-of-completion method. On January 10, 2015. Ma
P6,000,000 construction contract. At the inception date, the estimated cost of construction was P4,500,000. The fol
4. to the progress of the contract:

Income recognized at 12/31/2015

Cost incurred 1/01/2016 through 12/31/2016
Estimated cost to complete at 12/31/2016
 How much income should Marr recognize for the year ended December 31 , 2016?

a. ₱ 300,000 c.
b. ₱ 525,000 d.

5. The following relating to a construction job started by SS Co. during 2016:

Total contract price

Actual costs during 2016
Estimated remaining costs
Billed to customer during 2016
Received from customer during 2016

How much gross profit would SS Co. recognized for 2016 under the zero profit method and the percentage-of-completion

Zero Profit Method Percentage of Completion

a. P 0 ₱ 13,333 c.
b. P 0 ₱ 26,667 d.

On April 1 , 2016, BB Inc., entered into a cost-plus-fixed-fee contract to construct an electric generator/for Dalton Co
contract date, BB estimated that it would take two years to complete the project at a cost of P2,000,000. The fixed f
contract is P300,000. BB appropriately accounts for this contract under the percentage-of-completion method. Duri
incurred costs of P700,000 related to the project, and the estimated cost as of December 31, 2016 to complete the c
P1,400,000. Dalton was billed P500,000 under thecontract.
6.

The gross profit to be recognized by BB Inc. under the contract on December 31, 2016 is

a. ₱ 300,000 c.
b. ₱ 100,000 d.

The Robert Construction Corporation uses the percentage-of-completion method of accounting. In 2015, Robert be
contract it had received which provided for a contract price ofP8,000,000. Other details follow:
7.

Costs incurred during the year

Estimated costs to complete as of December 31
Billings during the year
Collections during the year

What should be the gross profit recognized in 2015?

a. ₱ 160,000 c.
b. ₱ 240,000 d.

In 2016, Long Corporation began construction work under a three-year contract. The contract price is P800,000. Lon
percentage-of-completion method for financial-accounting purposes. The income to be recognized each year is base
proportion ofcost incurred to total estimated costs for completing the contract. The financial-statement presentatio
contract at December 31, 2016 follows:
8.

Statement of Financial Position

 Accounts receivable-construction contract billings
Construction in progress
Less: Contract billings
Cost-of-uncompleted contract in excess of billings

Statement of Comprehensive Income

Income (before tax) on the contract recognized in 2016

The cash collected in 2016 and the initial estimated gross profit on this contract are:

Cash collection Estimated gross profit

a. ₱ 32,000 ₱ 10,000 c.
b. ₱ 32,000 ₱ 160,000 d.

Cortez Construction Company, Inc., entered into a firm fixed-price contract with Rod Association on July l, 2016 to c
story office building. At that Rod Association on July 1, 2014 to construct a four-story office building. At that time, C
that it would take between two and three years to complete the project. The total contract price for construction o
P4,000,000. Cortez appropriately accounts for this contract under the zero profit method in its financial statements
reporting. The building was deemed substantially completed on December 3 1 , 2016. Estimated percentage of com
accumulated contract costs incurred, estimated costs to complete the contract and accumulated billings to Rod und
were as follows:
9.

At December 31, 2014

Percentage of completion 10%
Contract costs incurred ₱ 350,000
Estimated costs to complete the contract 3,150,000
Billings to Rod 720,000

The amount to be shown as excess of cost over billings or (billings in excess of cost) in December 31, 2016 is

a. ₱ (400,000) c.
b. ₱ 260,000 d.

X Company uses the percentage of completion of recognizing income. In 2015, work was started on a P18,000,000 j
10. 2015. Records in 2016 show the following.

Progress billings
Costs incurred
Collections
Cost to complete

Gross profit recognized in 2016 was

a. ₱ 1,400,000 c.
b. ₱ 1,200,000 d.

On September 4, 2015, Contractors Inc. won the bid for the construction of a 1,000 room hotel Ever Corporation on
11. area for P1.2 billion. On the terms of payment, parties agreed to the following:

*** One percent mobilization fee (deductible from the final bill) payable within fifteen days after the signing o
 *** Retention of 10% on all billings, payable with the final bill after acceptance of entire completed project; an
*** Progress billings on construction within seven days from date of acceptance.

By the end of 2015, the company had presented only one progress billing for 10% completion when Ever evaluated
December 28 for payment in January. The company used the pecentage of completion method of accounting.

Contractors Inc. received a fee of:

a. ₱ 9,800,000 c.
b. 10800-000 d.
ommenced during 2016. A
Project 1 Project 2
₱ 420,000 ₱ 300,000
240,000 280,000
120,000 40,000
150,000 270,000
90,000 250,000

ero profit method and the percentage-of-completion method?

Zero profit Percentage of completion

₱ 20,000 ₱ 340,000
₱ 40,000 ₱ 420,000

of-completion method of recognizing income. During 2015 Lake

or P10,000,000. Information relating to the contract is as follows:
B
December 31, 2015 December 31, 2016
20% 60%
₱ 7,500,000 ₱ 8,000,000
500,000 1,200,000

₱ 3,500,000
₱ 4,800,000

completion method ofrecognizing income. During 2016 Hansen

accounting records disclosed the following data for the year ended
B
₱ 930,000
2,170,000
1,100,000
700,000

₱ 30,000
P 0
A
of-completion method. On January 10, 2015. Marr began work on a
ated cost of construction was P4,500,000. The following data relate

₱ 600,000
3,600,000
1,200,000
mber 31 , 2016?

₱ 600,000
₱ 900,000

A
₱ 100,000
20,000
40,000
30,000
10,000

o profit method and the percentage-of-completion method?

Zero Profit Method Percentage of Completion

₱ 4,000 ₱ 13,333
₱ 12,000 ₱ 33,333

t to construct an electric generator/for Dalton Corporation. At the

te the project at a cost of P2,000,000. The fixed fee stipulated in the
nder the percentage-of-completion method. During 2016, BB
d cost as of December 31, 2016 to complete the contract is
B
December 31, 2016 is

₱ 200,000
P 0

letion method of accounting. In 2015, Robert began work on a

00,000. Other details follow:
C
₱ 1,200,000
4,800,000
1,440,000
1,000,000

₱ 400,000
₱ 1,600,000

year contract. The contract price is P800,000. Long uses the

es. The income to be recognized each year is based on the
the contract. The financial-statement presentations relating to this
B
 ₱ 15,000
₱ 50,000
47,000
3,000

₱ 10,000

fit on this contract are:

Cash collection Estimated gross profit

₱ 15,000 ₱ 160,000
₱ 15,000 ₱ 30,000

contract with Rod Association on July l, 2016 to construct a four-

struct a four-story office building. At that time, Cortez estimated
roject. The total contract price for construction of the building is
he zero profit method in its financial statements and for income tax
ecember 3 1 , 2016. Estimated percentage of completion,
he contract and accumulated billings to Rod under the contract
C
At December 31, 2015 At December 31, 2016
60% 100%
₱ 2,500,000 ₱ 4,250,000
1,700,000 -
2,160,000 3,600,000

n excess of cost) in December 31, 2016 is

₱ 400,000
₱ (260,000)

me. In 2015, work was started on a P18,000,000 job completed in

D
₱ 6,600,000
5,400,000
4,200,000
10,800,000

₱ 900,000
₱ 600,000

uction of a 1,000 room hotel Ever Corporation on the reclamation

he following: C

bill) payable within fifteen days after the signing of the contract.
ll after acceptance of entire completed project; and
date of acceptance.

billing for 10% completion when Ever evaluated and accepted on

ntage of completion method of accounting.

₱ 12,000,000
₱ 1,200,000
1. The following data pertains to Bell Co.'s construction jobs, which commenced during 2016.

Contract price
Costs incurred during 2016
Estimated costs to complete
Billed to customers during 2016
Received from customers during 2016

What amount of gross profit (loss) would Bell report in 2016 under the zero profit method and the percentage-of-completi

Zero profit Percentage of completion

a. ₱ (20,000) ₱ 20,000 c.
b. ₱ 20,000 ₱ (20,000) d.

Lake Construction Company has consistently used the percentage-of-completion method of recognizing income. Du
entered into a fixed-price contract to construct an office building for P10,000,000. Information relating to the contra
2.

Percentage of completion
Estimated total cost at completion
Income recognized (cumulative)

Contract costs incurred during 2016 were

a. ₱ 3,200,000 c.
b. ₱ 3,300,000 d.

Mill Construction Co. uses the percentage of completion method of accounting. During 2016, Mill contracted to bui
complex for Drew for P20,000,000. Mill estimated that total costs would amount to P 16,000,000 over the period of
connection with this contract, Mill incurred P2,000,000 of construction cost during 2016. Mill billed and collected P
Drew in 2016.
3.

What amount should Mill recognize as gross profit for 2016?

a. ₱ 250,000 c.
b. ₱ 375,000 d.

4. The following data relate to a construction job started by Worthington Co. during 2016:

Total contract price

Actual costs incurred during 2016
Estimated remaining costs
Billed to customer during 2016
Received from customer during 2016

Under the percentage of completion method, 'how much should Worthington recognize as gross profit for 2016?
 a. P 0 c.
b. ₱ 40,000 d.

Hansen Construction, Inc. has consistently used the percentage-of-completion method ofrecognizing income. Durin
started work on a P3,000,000 fixed-priceconstruction contract. The accounting records disclosed the following data
5. December 3 1, 2016:

Costs incurred
Estimated cost to complete
Progress billings
Collections

How much loss should Hansen have recognized in 2016?

a. ₱ 230,000 c.
b. ₱ 100,000 d.

Marr Construction Company has consistently used the percentage-of-completion method. On January 10, 2015. Ma
P6,000,000 construction contract. At the inception date, the estimated cost of construction was P4,500,000. The fol
6. to the progress of the contract:

Income recognized at 12/31/2015

Cost incurred 1/01/2016 through 12/31/2016
Estimated cost to complete at 12/31/2016

How much income should Marr recognize for the year ended December 31 , 2016?

a. ₱ 300,000 c.
b. ₱ 525,000 d.

C & J Construction, Inc. consistently used the percentage of completion method of recognizing income. Last year C &
a P4,500,000 construction contract, which was completed this year. The accounting records disclosed the following
7.

Progress billings
Cost incurred
Collections
Estimated cost to complete

How much revenue should C & J recognize on this contract last year?

a. ₱ 105,000 c.
b. ₱ 150,000 d.

Excellent Co., a construction company, uses the percentage of completion method. In 2016, Excellent began work o
construct an office building for P1,100,000 and it was completed in 2017. Data on the cost are:
8.

Cost incurred
Estimated cost to complete
 For the years 2016 and 2017, Excellent should recognize gross profit of

2016 2017
a. P 0 ₱ 430,000 c.
b. ₱ 258,000 ₱ 172,000 d.

9. The following relating to a construction job started by SS Co. during 2016:

Total contract price

Actual costs during 2016
Estimated remaining costs
Billed to customer during 2016
Received from customer during 2016

How much gross profit would SS Co. recognized for 2016 under the zero profit method and the percentage-of-completion

Zero Profit Method Percentage of Completion

a. P 0 ₱ 13,333 c.
b. P 0 ₱ 26,667 d.

On April 1 , 2016, BB Inc., entered into a cost-plus-fixed-fee contract to construct an electric generator/for Dalton Co
contract date, BB estimated that it would take two years to complete the project at a cost of P2,000,000. The fixed f
contract is P300,000. BB appropriately accounts for this contract under the percentage-of-completion method. Duri
incurred costs of P700,000 related to the project, and the estimated cost as of December 31, 2016 to complete the c
P1,400,000. Dalton was billed P500,000 under thecontract.
10

The gross profit to be recognized by BB Inc. under the contract on December 31, 2016 is

a. ₱ 300,000 c.
b. ₱ 100,000 d.

The Robert Construction Corporation uses the percentage-of-completion method of accounting. In 2015, Robert be
contract it had received which provided for a contract price ofP8,000,000. Other details follow:
11.

Costs incurred during the year

Estimated costs to complete as of December 31
Billings during the year
Collections during the year

What should be the gross profit recognized in 2015?

a. ₱ 160,000 c.
b. ₱ 240,000 d.

In 2016, Long Corporation began construction work under a three-year contract. The contract price is P800,000. Lon
percentage-of-completion method for financial-accounting purposes. The income to be recognized each year is base
proportion ofcost incurred to total estimated costs for completing the contract. The financial-statement presentatio
contract at December 31, 2016 follows:
12.
Statement of Financial Position
 Accounts receivable-construction contract billings
Construction in progress
Less: Contract billings
Cost-of-uncompleted contract in excess of billings
Statement of Comprehensive Income
Income (before tax) on the contract recognized in 2016
The cash collected in 2016 and the initial estimated gross profit on this contract are:
Cash collection Estimated gross profit
a. ₱ 32,000 ₱ 10,000 c.
b. ₱ 32,000 ₱ 160,000 d.

Cortez Construction Company, Inc., entered into a firm fixed-price contract with Rod Association on July l, 2016 to c
story office building. At that Rod Association on July 1, 2014 to construct a four-story office building. At that time, C
that it would take between two and three years to complete the project. The total contract price for construction o
P4,000,000. Cortez appropriately accounts for this contract under the zero profit method in its financial statements
reporting. The building was deemed substantially completed on December 3 1 , 2016. Estimated percentage of com
accumulated contract costs incurred, estimated costs to complete the contract and accumulated billings to Rod und
were as follows:
13.
At December 31, 2014
Percentage of completion 10%
Contract costs incurred ₱ 350,000
Estimated costs to complete the contract 3,150,000
Billings to Rod 720,000
The amount to be shown as excess of cost over billings or (billings in excess of cost) in December 31, 2016 is

a. ₱ (400,000) c.
b. ₱ 260,000 d.

X Company uses the percentage of completion of recognizing income. In 2015, work was started on a P18,000,000 j
14. 2015. Records in 2016 show the following.

Progress billings
Costs incurred
Collections
Cost to complete

Gross profit recognized in 2016 was

a. ₱ 1,400,000 c.
b. ₱ 1,200,000 d.
 On September 4, 2015, Contractors Inc. won the bid for the construction of a 1,000 room hotel Ever Corporation on
15 area for P1.2 billion. On the terms of payment, parties agreed to the following:

*** One percent mobilization fee (deductible from the final bill) payable within fifteen days after the signing o
*** Retention of 10% on all billings, payable with the final bill after acceptance of entire completed project; an
*** Progress billings on construction within seven days from date of acceptance.

By the end of 2015, the company had presented only one progress billing for 10% completion when Ever evaluated
December 28 for payment in January. The company used the pecentage of completion method of accounting.

Contractors Inc. received a fee of:

a. ₱ 9,800,000 c.
b. 10800-000 d.

High Rise Corp. has entered into a very profitable fixed-price contract for constructing a condominium building over
years, with a total estimated cost of P18 million. It incurs the following costs relating to the contract during the first
construction:
16.

Materials
Site labor costs
Agreed administration costs as per contract to be reimbursed by the customer
Depreciation of the plant used for the construction
Marketing costs for selling condo units when they are ready for occupancy

What is the percentage of completion of this contract?

a. 33.33% c.
b. 27% d.
 ommenced during 2016. A
Project 1 Project 2
₱ 420,000 ₱ 300,000
240,000 280,000
120,000 40,000
150,000 270,000
90,000 250,000

ero profit method and the percentage-of-completion method?

Zero profit Percentage of completion

₱ 20,000 ₱ 340,000
₱ 40,000 ₱ 420,000

of-completion method of recognizing income. During 2015 Lake

or P10,000,000. Information relating to the contract is as follows:
B
December 31, 2015 December 31, 2016
20% 60%
₱ 7,500,000 ₱ 8,000,000
500,000 1,200,000

₱ 3,500,000
₱ 4,800,000

f accounting. During 2016, Mill contracted to build an apartment

would amount to P 16,000,000 over the period of construction. In
tion cost during 2016. Mill billed and collected P3,000,000 from
C

₱ 500,000
₱ 600,000

ton Co. during 2016: B

₱ 300,000
60,000
120,000
90,000
30,000

Worthington recognize as gross profit for 2016?

 ₱ 80,000
₱ 100,000

completion method ofrecognizing income. During 2016 Hansen

accounting records disclosed the following data for the year ended
B
₱ 930,000
2,170,000
1,100,000
700,000

₱ 30,000
P 0
A
of-completion method. On January 10, 2015. Marr began work on a
ated cost of construction was P4,500,000. The following data relate

₱ 600,000
3,600,000
1,200,000

mber 31 , 2016?

₱ 600,000
₱ 900,000

etion method of recognizing income. Last year C & J started work on

. The accounting records disclosed the following data for last year:
B
₱ 1,650,000
1,350,000
1,050,000
2,700,000

₱ 300,000
₱ 350,000

pletion method. In 2016, Excellent began work on a contract to

2017. Data on the cost are:
C
December 31, 2016 December 31, 2017
₱ 390,000 ₱ 280,000
260,000
 2016 2017
₱ 270,000 ₱ 160,000
₱ 270,000 ₱ 430,000

A
₱ 100,000
20,000
40,000
30,000
10,000

o profit method and the percentage-of-completion method?

Zero Profit Method Percentage of Completion

₱ 4,000 ₱ 13,333
₱ 12,000 ₱ 33,333

t to construct an electric generator/for Dalton Corporation. At the

te the project at a cost of P2,000,000. The fixed fee stipulated in the
nder the percentage-of-completion method. During 2016, BB
d cost as of December 31, 2016 to complete the contract is
B
December 31, 2016 is

₱ 200,000
P 0

letion method of accounting. In 2015, Robert began work on a

00,000. Other details follow:
C
₱ 1,200,000
4,800,000
1,440,000
1,000,000

₱ 400,000
₱ 1,600,000

year contract. The contract price is P800,000. Long uses the

es. The income to be recognized each year is based on the
the contract. The financial-statement presentations relating to this
B
 ₱ 15,000
₱ 50,000
47,000
3,000

₱ 10,000
fit on this contract are:
Cash collection Estimated gross profit
₱ 15,000 ₱ 160,000
₱ 15,000 ₱ 30,000

contract with Rod Association on July l, 2016 to construct a four-

struct a four-story office building. At that time, Cortez estimated
roject. The total contract price for construction of the building is
he zero profit method in its financial statements and for income tax
ecember 3 1 , 2016. Estimated percentage of completion,
he contract and accumulated billings to Rod under the contract
C
At December 31, 2015 At December 31, 2016
60% 100%
₱ 2,500,000 ₱ 4,250,000
1,700,000 -
2,160,000 3,600,000
n excess of cost) in December 31, 2016 is

₱ 400,000
₱ (260,000)

me. In 2015, work was started on a P18,000,000 job completed in

D
₱ 6,600,000
5,400,000
4,200,000
10,800,000

₱ 900,000
₱ 600,000
uction of a 1,000 room hotel Ever Corporation on the reclamation
he following: C

bill) payable within fifteen days after the signing of the contract.
ll after acceptance of entire completed project; and
date of acceptance.

billing for 10% completion when Ever evaluated and accepted on

ntage of completion method of accounting.

₱ 12,000,000
₱ 1,200,000

act for constructing a condominium building over a period of three

wing costs relating to the contract during the first year of

A
₱ 2,500,000
2,000,000
ursed by the customer 1,000,000
500,000
ady for occupancy 1,000,000

25%
39%