Chapter 10:

LONG TERM CONSTRUCTION

CONTRACTS
 CONSTRUCTION CONTRACT
Construction contract defined (IAS 11, par. 3):
A contract specifically negotiated for the
construction of an asset or a combination of
assets that are closely interrelated or
interdependent in terms of their design,
technology and function of their ultimate
purpose or use.
 CONSTRUCTION CONTRACT
Construction contract may be classified into:
A. Fixed Price Contract.
B. Cost Plus Contract.
 CONTRACT REVENUE
Revenue from long-term construction
contracts is measured at the fair value of the
consideration received or receivable.
This include the amount of revenue agreed in
the contract.
This amount may increase or decrease from
one period to the next.
 CONTRACT COST
Contract costs are cost that relate directly to the
specific contract;
Are attributable to contract activity in general
and can be allocated to the contract;
And are specifically chargeable to the customer
under the terms of the contract.
 TYPES OF CONTRACT COST
Contract costs can be broken down into two
categories: costs incurred to date and
estimated cost to complete.
 SUBCONTRACTOR COST
The amount billed to the principal contractor
for work done by the subcontractor should be
included in contract costs.
COMPUTATION AND RECOGNITION OF
CONSTRUCTION REVENUE
Two basic methods are used to account for
long-term construction contracts: the
percentage-of-completion method and the
zero profit method.
 Rev. Recog - 10

REVENUE RECOGNITION POINTS

Recognition Recognition Recognition
before delivery at delivery after delivery

Design and production, Goods completed Delivery of Cash collected Right of

construction in progress, and ready for sale, product or for goods or return expires
minerals discovered contract complete service services

Percentage-of Production Point

completion method method of sale
Installment Right of
method
method return
expiration
Completed Cost
method
contract recovery
method method

RELEVANCE RELIABILITY
PERCENTAGE-OF-COMPLETION METHOD

This method is used when the outcome of the

construction contract can be estimated
reliably, that is, the estimate of costs to
complete and the extent of progress toward
completion of long-term contracts are
reasonably dependable.
PERCENTAGE-OF-COMPLETION METHOD

TWO BASIC METHODS

1. Input measures (cost to cost method).
- Are made in relation to the costs of efforts devoted to
a contract. (cost incurred to date compared to total
estimated costs)

2. Output measures (units of delivery).

- The progress is based on the results achieved.
 ZERO PROFIT METHOD

If the contractor is protected in this manner

but is unable to make reasonable estimates
of the percentage of completion.
This method is described as the percentage-of-
completion method based on zero profit
margin.
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011
(1) Total contract price
(2) Cost incurred to date
(3) Estimated costs to
complete
(4) Total estimated costs
(5) Expected gross profit
x % of completion
Gross profit to date
Less: GP PY’s
GP earned TY
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011
(1) Total contract price P 5,000,000
(2) Cost incurred to date
(3) Estimated costs to
complete
(4) Total estimated costs
(5) Expected gross profit
x % of completion
Gross profit to date
Less: GP PY’s
GP earned TY
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011
(1) Total contract price P 5,000,000
(2) Cost incurred to date 1,350,000
(3) Estimated costs to
complete
(4) Total estimated costs
(5) Expected gross profit
x % of completion
Gross profit to date
Less: GP PY’s
GP earned TY
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011
(1) Total contract price P 5,000,000
(2) Cost incurred to date 1,350,000
(3) Estimated costs to
complete 3,150,000
(4) Total estimated costs
(5) Expected gross profit
x % of completion
Gross profit to date
Less: GP PY’s
GP earned TY
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011
(1) Total contract price P 5,000,000
(2) Cost incurred to date 1,350,000
(3) Estimated costs to
complete 3,150,000
(4) Total estimated costs 4,500,000
(5) Expected gross profit
x % of completion
Gross profit to date
Less: GP PY’s
GP earned TY
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011
(1) Total contract price P 5,000,000
(2) Cost incurred to date 1,350,000
(3) Estimated costs to
complete 3,150,000
(4) Total estimated costs 4,500,000
(5) Expected gross profit
500,000
x % of completion
Gross profit to date
Less: GP PY’s
GP earned TY
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011
(1) Total contract price P 5,000,000
(2) Cost incurred to date 1,350,000
(3) Estimated costs to
complete 3,150,000
(4) Total estimated costs 4,500,000
(5) Expected gross profit
500,000
x % of completion
30%
Gross profit to date
Less: GP PY’s Total costs incurred to date
% ofGP
completion
earned TY=
Total estimated costs
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011
(1) Total contract price P 5,000,000
(2) Cost incurred to date 1,350,000
(3) Estimated costs to
complete 3,150,000
1,350,000 / 4,500,000
(4) Total estimated costs 4,500,000 = 30%
(5) Expected gross profit
500,000
x % of completion
30%
Gross profit to date
Less: GP PY’s Total costs incurred to date
% ofGP
completion
earned TY=
Total estimated costs
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011
(1) Total contract price P 5,000,000
(2) Cost incurred to date 1,350,000
(3) Estimated costs to
complete 3,150,000
(4) Total estimated costs 4,500,000
(5) Expected gross profit
500,000
x % of completion
30%
Gross profit to date
Less: GP PY’s
GP earned TY
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011
(1) Total contract price P 5,000,000
(2) Cost incurred to date 1,350,000
(3) Estimated costs to
complete 3,150,000
(4) Total estimated costs 4,500,000
(5) Expected gross profit
500,000
x % of completion
30%
Gross profit to date
150,000
Less: GP PY’s
GP earned TY
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011
(1) Total contract price P 5,000,000
(2) Cost incurred to date 1,350,000
(3) Estimated costs to
complete 3,150,000
(4) Total estimated costs 4,500,000
(5) Expected gross profit
500,000
x % of completion
30%
Gross profit to date
150,000
Less: GP PY’s
-
GP earned TY
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011
(1) Total contract price P 5,000,000
(2) Cost incurred to date 1,350,000
(3) Estimated costs to
complete 3,150,000
(4) Total estimated costs 4,500,000
(5) Expected gross profit
500,000
x % of completion
30%
Gross profit to date
150,000
Less: GP PY’s
-
GP earned TY
P 150,000
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011 2012
(1) Total contract price P 5,000,000
(2) Cost incurred to date 1,350,000
(3) Estimated costs to
complete 3,150,000
(4) Total estimated costs 4,500,000
(5) Expected gross profit
500,000
x % of completion
30%
Gross profit to date
150,000
Less: GP PY’s
-
GP earned TY
P 150,000
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011 2012
(1) Total contract price P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000
(3) Estimated costs to
complete 3,150,000
(4) Total estimated costs 4,500,000
(5) Expected gross profit
500,000
x % of completion
30%
Gross profit to date
150,000
Less: GP PY’s
-
GP earned TY
P 150,000
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011 2012
(1) Total contract price P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000
(3) Estimated costs to
complete 3,150,000
(4) Total estimated costs 4,500,000
Cost incurred each year
(5) Expected gross profit
500,000 2011 P 1,350,000
x % of completion
30% 2012 2,250,000
Gross profit to date Total P 3,600,000
150,000
Less: GP PY’s
-
GP earned TY
P 150,000
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011 2012
(1) Total contract price P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000
(3) Estimated costs to
complete 3,150,000 400,000
(4) Total estimated costs 4,500,000
(5) Expected gross profit
500,000
x % of completion
30%
Gross profit to date
150,000
Less: GP PY’s
-
GP earned TY
P 150,000
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011 2012
(1) Total contract price P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000
(3) Estimated costs to
complete 3,150,000 400,000
(4) Total estimated costs 4,500,000 4,000,000
(5) Expected gross profit
500,000
x % of completion
30%
Gross profit to date
150,000
Less: GP PY’s
-
GP earned TY
P 150,000
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011 2012
(1) Total contract price P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000
(3) Estimated costs to
complete 3,150,000 400,000
(4) Total estimated costs 4,500,000 4,000,000
(5) Expected gross profit
500,000 1,000,000
x % of completion
30%
Gross profit to date
150,000
Less: GP PY’s
-
GP earned TY
P 150,000
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011 2012
(1) Total contract price P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000
(3) Estimated costs to
complete 3,150,000
3,600,000
400,000
(4) Total estimated costs / 4,000,000
4,500,000 4,000,000 = 90%
(5) Expected gross profit
500,000 1,000,000
x % of completion
30% 90%
Gross profit to date
Less: GP PY’s Total costs150,000
incurred to date
% of completion = -
GP earned TY
TotalPestimated
150,000costs
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011 2012
(1) Total contract price P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000
(3) Estimated costs to
complete 3,150,000 400,000
(4) Total estimated costs 4,500,000 4,000,000
(5) Expected gross profit
500,000 1,000,000
x % of completion
30% 90%
Gross profit to date
150,000
Less: GP PY’s
-
GP earned TY
P 150,000
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011 2012
(1) Total contract price P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000
(3) Estimated costs to
complete 3,150,000 400,000
(4) Total estimated costs 4,500,000 4,000,000
(5) Expected gross profit
500,000 1,000,000
x % of completion
30% 90%
Gross profit to date
150,000 900,000
Less: GP PY’s
-
GP earned TY
P 150,000
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011 2012
(1) Total contract price P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000
(3) Estimated costs to
complete 3,150,000 400,000
(4) Total estimated costs 4,500,000 4,000,000
(5) Expected gross profit
500,000 1,000,000
x % of completion
30% 90%
Gross profit to date
150,000 900,000
Less: GP PY’s
- 150,000
GP earned TY
P 150,000
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011 2012
(1) Total contract price P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000
(3) Estimated costs to
complete 3,150,000 400,000
(4) Total estimated costs 4,500,000 4,000,000
(5) Expected gross profit
500,000 1,000,000
x % of completion
30% 90%
Gross profit to date
150,000 900,000
Less: GP PY’s
- 150,000
GP earned TY
P 150,000
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011 2012
(1) Total contract price P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000
(3) Estimated costs to
complete 3,150,000 400,000
(4) Total estimated costs 4,500,000 4,000,000
(5) Expected gross profit
500,000 1,000,000
x % of completion
30% 90%
Gross profit to date
150,000 900,000
Less: GP PY’s
- 150,000
GP earned TY
P 150,000 P 750,000
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Percentage-of-Completion Method.
2011 2012 2013
(1) Total contract price P 5,000,000 P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000 4,000,000
(3) Estimated costs to
complete 3,150,000 400,000 -
(4) Total estimated costs 4,500,000 4,000,000 4,000,000
(5) Expected gross profit
500,000 1,000,000 1,000,000
x % of completion
30% 90% 100%
Gross profit to date
150,000 900,000 1,000,000
Less: GP PY’s
- 150,000 900,000
GP earned TY
P 150,000 P 750,000 P 100,000
 ILLUSTRATIVE PROBLEM
Illustration 10-2: Zero Profit Method
2011 2012 2013
Construction Revenues P 1,350,000 P 2,250,000 P 1,400,000
Cost incurred each year 1,350,000 2,250,000 400,000
Gross profit earned TY P 0 P 0 P 1,000,000

Under the zero profit method, the recognition of profit

is deferred until the project is completed, but revenue
is recognized equal to the total costs incurred to date
in 2011 and 2012.
 ALTERNATIVE PROCEDURE
Illustration 10-2: Percentage-of-Completion Method.
2011 2012 2013
Contract price P 5,000,000 P 5,000,000 P 5,000,000
x % of completion 30% 90% 100%
Value of contract earned 1,500,000 4,500,000 5,000,000
Less: Cost incurred to date 1,350,000 3,600,000 4,000,000
GP earned to date 150,000 900,000 1,000,000
Less: GP earned in PY’s - 150,000 900,000
GP earned this year P 150,000 P 750,000 P 100,000
 ILLUSTRATIVE JOURNAL ENTRIES
Illustration 10-3: Comparison of ZPM and PoC Journal Entries
Date Event Accounts Zero Profit Method % of Completion
Dr. Cr. Dr. Cr.
2011 1 Contract Signed No entry necessary to record contract commitment
2 Cost Incurred CIP 1,350,000 1,350,000
Cash 1,350,000 1,350,000
3 Progress AR 400,000 400,000
Billings CB 400,000 400,000

4 Billing Cash 275,000 275,000

Collections AR 275,000 275,000
5 Revenue CIP - 150,000
Recognition Cost of Cons. 1,350,000 1,350,000
Cons. Rev. 1,350,000 1,500,000
 ILLUSTRATIVE JOURNAL ENTRIES
Illustration 10-3: Comparison of ZPM and PoC Journal Entries
Date Event Accounts Zero Profit Method % of Completion
Dr. Cr. Dr. Cr.
2012 6 Cost Incurred CIP 2,250,000 2,250,000
Cash 2,250,000 2,250,000
7 Progress AR 2,000,000 2,000,000
Billings CB 2,000,000 2,000,000

8 Billing Cash 2,100,000 2,100,000

Collections AR 2,100,000 2,100,000
9 Revenue CIP - 750,000
Recognition Cost of Cons. 2,250,000 2,250,000
Cons. Rev. 2,250,000 3,000,000
 ILLUSTRATIVE JOURNAL ENTRIES
Illustration 10-3: Comparison of ZPM and PoC Journal Entries
Date Event Accounts Zero Profit Method % of Completion
Dr. Cr. Dr. Cr.
2013 10 Cost Incurred CIP 400,000 400,000
Cash 400,000 400,000
11 Progress AR 2,600,000 2,600,000
Billings CB 2,600,000 2,600,000

12 Billing Cash 2,625,000 2,625,000

Collections AR 2,625,000 2,625,000
13 Revenue CIP 1,000,000 1,000,000
Recognition Cost of Cons. 400,000 400,000
Cons. Rev. 1,400,000 1,400,000
14 Elimination of CB 5,000,000 5,000,000
inventory CIP 5,000,000 5,000,000
FINANCIAL STATEMENT PRESENTATION

Construction in progress is compared to billings

on construction contract.
• CIP > PB = Due from customers (Asset)
• CIP < PB = Due to customers (Liability)

46
ANTICIPATED LOSSES ON LONG-TERM-
CONSTRUCTION PROJECTS
When a loss on the total contract is
anticipated, PAS No. 11 require reporting the
loss in its entirely immediately when the loss is
first anticipated. (Either zero profit or the
percentage of completion method).
Case 1: Loss in the year of revision of estimated
costs but profit in total contract
2011 2012 2013
(1) Total contract price P 5,000,000 P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000 4,860,000
(3) Estimated costs to
complete 3,150,000 1,260,000 -
(4) Total estimated costs 4,500,000 4,860,000 4,860,000
(5) Expected gross profit 500,000 140,000 140,000
% of completion 30% 75% 100%
Gross profit to date 150,000 105,000 1,000,000
Less:
Entries GPthe
under earned in PY’s
percentage-of-completion -
method: 150,000 900,000
GP (Loss) recognized TY P 150,000 P (45,000) P 100,000

2011 2012 2013

Cost of construction 1,350,000 2,250,000 1,260,000
CIP 150,000 45,000 35,000
Const. Rev. 1,500,000 2,205,000 1,295,000
Case 1: Loss in the year of revision of estimated
costs but profit in total contract
2011 2012 2013
(1) Total contract price P 5,000,000 P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000 4,860,000
(3) Estimated costs to
complete 3,150,000 1,260,000 -
(4) Total estimated costs 4,500,000 4,860,000 4,860,000
(5) Expected gross profit 500,000 140,000 140,000
% of completion 30% 75% 100%
Gross profit to date 150,000 105,000 1,000,000
Less: GP earned in PY’s - 150,000 900,000
Entries
GPunder
(Loss)the zero profitTY
recognized method:
P 150,000 P (45,000) P 100,000

2011 2012 2013

Cost of construction 1,350,000 2,250,000 1,260,000
CIP 140,000
Const. Rev. 1,350,000 2,250,000 1,400,000
 Case 2: Loss in the year of revision of total
estimated costs but overall loss on the contract
2011 2012 2013
(1) Total contract price P 5,000,000 P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000 5,100,000
(3) Estimated costs to
complete 3,150,000 1,500,000 -
(4) Total estimated costs 4,500,000 5,100,000 5,100,000
(5) Expected gross profit 500,000 (100,000) (100,000)
% of completion 30% 70% 100%

Entries under the zero profit method:

2011 2012 2013

Cost of construction 1,350,000 2,250,000 1,500,000
CIP 100,000
Const. Rev. 1,500,000 2,150,000 1,500,000
Case 2: Under the Percentage of Completion
Method
2011 2012 2013
(1) Total contract price P 5,000,000 P 5,000,000 P 5,000,000
(2) Cost incurred to date 1,350,000 3,600,000 5,100,000
(3) Estimated costs to
complete 3,150,000 1,500,000 -
(4) Total estimated costs 4,500,000 5,100,000 5,100,000
(5) Expected gross profit 500,000 (100,000) (100,000)
% of completion 30% - 100%
Gross profit to date 150,000 (100,000) (100,000)
Less: GP earned in PY’s - 150,000 (100,000)
GP (Loss) recognized TY P 150,000 P (250,000) P 0

The entry to record the total loss at the end of 2012 would be as follows:
Cost of construction 2,250,000
Construction Revenue 2,000,000
Construction in progress (total loss) 150,000
 CONTRACT RETENTION
To ensure the completion of the project
satisfactorily, part of the billings may not be
paid to the contractor until the project is
completed and accepted.
For example:
Cash 900,000
Contract retention 100,000
Accounts Receivable 1,000,000
The Contract Retention Account is presented in the statement
of financial position as a current asset. Upon completion,
the balance will be closed by Debiting Cash and Crediting
Contract Retention account.
 FINANCIAL STATEMENT PRESENTATION
REQUIREMENT UNDER PAS 11
Construction in progress is compared to billings
on construction contract.
• CIP > PB = Due from customers (Asset)
• CIP < PB = Due to customers (Liability)

53
 Disclosure Requirements under PAS 11
PAS 11 prescribes a number of disclosures; some of them
are for all the contracts and others are only for contracts
in progress at the statement of financial position. These
are summarized below:
1. Disclosure relating to all contracts:
a. Aggregate amount of contract revenue recognized in the period.
b. Methods used in determination of contract revenue recognized in
the period.
2. Disclosure relating to contracts in progress:
a. Methods used in determination of stage of completion (of
contract in progress)
b. Aggregate amount of costs incurred and recognized profits (net
of recognized losses) to date.
c. Amounts of advances received (at statement of financial
position date).
d. Amount of retentions (at statement of financial position date).
 10-1
Percentage of Completion Method:
Contract Price P1,000,000
Less: Total estimated cost
Cost incurred P 200,000
Estimated remaining cost _400,000 __600,000
Gross profit estimated 400,000
% of completion (200,000/600,000) __33 1/3%
Gross profit to be recognized P   133,333
 
Zero Profit Method: 0

Answer: A
 10-2
2007 2008
Contract Price P9,000,000 P9,000,000
Less: Total estimated cost _7,800,000 _8,100,000
Estimated gross profit 1,200,000 900,000
% of completion:
2007 (3,900,000/7,800,000) 50%
2008(6,300,000/8,100,000) _________ ______78%
Gross profit earned to date 600,000 700,000
Less: Gross profit earned in prior year ________– ___600,000
Gross profit earned each year P   600,000 P   100,000

Answer: A
 10-3
Contract Price P6,000,000
Less: Total estimated cost (3,600,000 + 1,200,000) _4,800,000
Estimated gross profit 1,200,000
% of completion (3,600,000/4,800,000) _____75%
Gross profit earned to date 900,000
Less: Gross profit earned in 2007 __600,000
Gross profit earned in 2008 P  300,000

Answer: A
 10-4
Contract Price P3,000,000
Less: Total estimated cost (930,000 + 2,170,000) _3,100,000
Loss (P  100,000)

Answer: B
 10-5
Total cost to date, 2011 (4,800,000 X 60%) P2,880,000
Less: Cost incurred in 2010 (4,500,000 X 20%) __900,000
Cost incurred in 2011 P1,980,000

Answer: B
 10-6
Percentage of Completion Method:
Contract Price P3,000,000
Less: Total estimated cost (900,000/1,800,000) _2,700,000
Estimated gross profit 300,000
% of completion (900,000/2,700,000) ___33.33%
Gross profit recognized, 2010 100,000
Add: Cost Incurred ___900,000
Construction in Progress - 2010 P 1,000,000
 
Zero Profit Method:
Cost incurred to Construction in Progress - 2010 P   900,000

Answer: A
 10-7
2010 2011
Contract Price P4,200,000 P4,200,000
Less: Total estimated cost _3,000,000 _3,750,000
Estimated gross profit 1,200,000 450,000
% of completion _____20% ____100%
Gross Profit earned to date 240,000 450,000
Gross Profit earned in prior year _______– __240,000
Gross Profit earned this year P  240,000 P  210,000
 

Answer: A
 10-8
Collections:
Contract Billings P   47,000
Less: Accounts receivable ___15,000
CollectionsP    32,000
 
Initial Gross Profit:
Contract Price P  800,000
Gross Profit rate:
Income recognized 10,000
Divide by Construction in Progress 50,000 = _____20%
Initial Gross Profit P  160,000
 

Answer: B
 10-9
Gross profit (loss) earned in 2011 (P   20,000)
Gross profit earned in prior years _180,000
Gross profit earned to date - 2011 160,000
Divide by percentage of completion - 2011 ___100%
Estimated gross profit - 2011 160,000
Less: Contract price2,000,000
Total estimated cost 1,840,000
Less: Cost incurred - 2011 _820,000
Cost incurred to date - 2010 1,020,000
Less: Cost incurred - 2009 __360,000
Cost incurred in 2010 P  660,000
 

Answer: A
 10-10
Gross profit earned to date - 2010 (P40,000 + P140,000) P  180,000
Divide by estimated gross profit - 2010:
Contract price P2,000,000
Gross profit rate [180,000/(1,020,000 + 180,000)] ___X 15% __300,000
Percentage of completion - 2010 60%
 
 

Answer: B
 10-14
Project 1 Project 2
Percentage of Completion Method:
Contract price P  420,000 P  300,000
Less: Total estimated cost
Cost incurred to date - 2011 P  240,000 P  280,000
Estimated cost to complete __120,000 ___70,000
Total __360,000 __350,000
Estimated gross profit (Loss) 60,000 (50,000)
Percentage of completion __66.67% _______–
Profit (loss) to be recognized P   40,000 (P  50,000)
Total is (P10,000)
 
Zero Profit Method - The loss (P50,000) for project 2 only.

Answer: D