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Week 8 - Tutorial Solution

The document shows the financial information for a construction contract over three years from 2019 to 2021, including the contract price, actual and estimated costs to complete the project, percentage of completion each year, and the calculation of revenue and gross profit recognized each year based on the percentage of completion method. Journal entries are provided to record the transactions relating to the construction contract for each year.

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Avishchal Chand
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46 views3 pages

Week 8 - Tutorial Solution

The document shows the financial information for a construction contract over three years from 2019 to 2021, including the contract price, actual and estimated costs to complete the project, percentage of completion each year, and the calculation of revenue and gross profit recognized each year based on the percentage of completion method. Journal entries are provided to record the transactions relating to the construction contract for each year.

Uploaded by

Avishchal Chand
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Review Question: 19

Year 2019 2020 2021


($) ($) ($)
Contract Price 10,000,000 10,000,000 10,000,000

Less: Estimated Cost

Actual cost to complete 2,500,000 6,500,000 8,000,000

Estimated costs to complete 5,500,000 1,500,000 -

Estimated total cost 8,000,000 8,000,000 8,000,000

Estimated total gross profit 2,000,000 2,000,000 2,000,000

Percentage completed 31.25% 81.25% 100%

2019 $2,000,000* 31.25% $625,000

2020 $2,000,000*81.25% $1,625,000

Less: gross profit already recognized $625,000

Gross profit in 2019 $1,000,000

2021 $2,000,000* 100% $2,000,000

Less gross profit already recognized $1,625,000

Gross profit in 2020 $375,000


Journal entry
Particulars 2019 2020 2021
$M $M $M
I.) DR Construction in progress (contract 2.5 4.0 1.5
asset)
CR Cash/ Payable 2.5 4.0 1.5
II.) DR Accounts receivable 2 5 3
CR Construction in progress 2 5 3
III.) DR Cash 2 5 3
CR Accounts receivable 2 5 3
IV.) DR Construction in progress 0.625 1 0.375
DR Construction expense 2.5 4 1.5
CR Revenue from long term 3.125 5 1.875
contracts

Review Question: 20
Year 2019 2020 2021
($) ($) ($)
Contract Price 10,000,000 10,000,000 10,000,000

Less: estimated cost

Cost to date 2,500,000 5,000,000 8,000,000

Estimated cost to complete 5,500,000 3,000,000 -

Estimated cost to complete 8,000,000 8,000,000 8,000,000

Estimated total gross profit 2,000,000 2,000,000 2,000,000

Percent completed 31.25% 62.50% 100%

2019 $2,000,000* 31.25% $625,000

2020 $2,000,000*62.50% $1,250,000

Less: gross profit already recognized


$625,000
Gross profit in 2019 $625,000

2021 $2,000,000* 100% $2,000,000

Less gross profit already recognized $1,250,000

Gross profit in 2020 $750,000

Particulars 2019 2020 2021


$M $M $M
I.) DR Construction in progress 2.5 4 1.5
CR Cash/ Payable 2.5 4 1.5
II.) DR Accounts receivable 2 5 3
CR Construction in progress 2 5 3
III.) DR Cash 2 5 3
CR Accounts receivable 2 5 3
IV.) DR Construction in progress 0.625 0.62 0.75
DR Construction expense 2.5 5 1.5
CR Revenue from long term 3.125 4 4.625 2.25
contracts

Challenging Question 25
Particulars DR ($) CR ($)
I.) DR Cash (3000* $50) 150,000
CR Revenue (2850* $ 50) 147,500
CR Refund liability (50* $50) 2,500
II.) DR COGS (2950* $20) 59,000
DR Right to recover (50* $20) 1,000
CR Inventory (3000* $20) 60,000
III.) DR Refund liability (50* $50) 2,500
CR Bank (50* $50) 2,500
IV.) DR Inventory (50* $20) 1,000
CR Right to recover (50* $20) 1,000

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