ABC Co. a private contractor, wins a bid to construct a railway for the government. The terms of the arrangement are as follows: > Construct a road- completing construction within a year; > Maintain and operate the road for four years. > Resurface the road when the original surface has deteriorated below specified condition. The operator estimates that it will have to undertake the resurfacing at the end of year 3. The operator collects toll fees of P200,000 per year. The contract ends in year 5. The operator estimates that the resurfacing expenditure increases by P5,000 for each year that the road is used. The appropriate discount rate is 10%. At contract inception, ABC Co. identifies a single performance obligation for construction services. ABC Co. makes the following estimates: YEAR CONTRACT COST Stand Alone Selling Price Construction Service 200,000 15,000 10,000 Forecast cost + 25% Operation Services 2-5 N/A N/A Road Resurface 3 At the start of year 1, ABC Co. obtains a 4-year, 10% P200,000 bank loan to help finance the arrangement. The principal and interest on the loan matures in lump sum. Compute for the net income for year 3.

ABC Co. a private contractor, wins a bid to construct a railway for the government. The terms of the arrangement are as follows: > Construct a road- completing construction within a year; > Maintain and operate the road for four years. > Resurface the road when the original surface has deteriorated below specified condition. The operator estimates that it will have to undertake the resurfacing at the end of year 3. The operator collects toll fees of P200,000 per year. The contract ends in year 5. The operator estimates that the resurfacing expenditure increases by P5,000 for each year that the road is used. The appropriate discount rate is 10%. At contract inception, ABC Co. identifies a single performance obligation for construction services. ABC Co. makes the following estimates: YEAR CONTRACT COST Stand Alone Selling Price Construction Service 200,000 15,000 10,000 Forecast cost + 25% Operation Services 2-5 N/A N/A Road Resurface 3 At the start of year 1, ABC Co. obtains a 4-year, 10% P200,000 bank loan to help finance the arrangement. The principal and interest on the loan matures in lump sum. Compute for the net income for year 3.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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