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:
Costs incurred to date
Estimated costs yet to be incurred
Customer billings each year
Collection of billings each year

2013
560,000
1,040,000
750,000
560,000

2014
1,200,000
400,000
560,000
640,000

2015
1,570,000
690,000
700,000

Determine the following:

1.

2.

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
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.

2.

P2 - 06

Using Percentage-of-completion Method

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

a.
b.
c.
d.
e.

Construction In-Progress Account

Net income
Recognize revenue
Construction Costs
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
Contract cost incurred
Estimated costs to complete
Billings to RX, Inc

2013
350,000
1,050,000
192,500

2014
930,000
6,850,000
1,420,000

2015
670,000
212,500

Determine the following:

a.
b.
c.
d.

Inventory account, net at December 31, 2014, assuming no dependable estimates are available
Inventory account, net at December 31, 2014, using cost to cost method
Recognized revenue or loss in 2013, 2014 & 2015 using zero profit method
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.
Construction in Progress
Estimated costs to complete
Cost incurred
Excess of Construction in Progress over
Billings

2013
441,000
?
425,250
P84,000 current
liabilty

2014
?
?
969,000
P330,750 current
liabilty

2015
?

675,750
-

Determine the following:

a.
b.
c.

P2 - 06

Estimated remaining cost in 2013

Realized gross profit (loss) in 2014
Construction in progress in 2014