The terms of the arrangement require the operator to:a. Construct a road-completing construction within two yearsb. Maintain and operate the road for three yearsc. Resurface the road at the end of Year 4d. The government pays the operator P200 per year in Years 3 to 5 for making the road available tothe publice. The road is turn-over to the government at the end of Year 5f. The operators determine that the implied interest rate is 24.42%.g. The operator finances the arrangement entirely with debt. The debt proceeds are taken as thecontract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year5. The effective interest rate is 25.77%The operator makes the following estimates:YearContract CostStand-alone selling priceConstruction Services170Forecast cost +10%280Forecast cost +20%Operation ServicesRoad resurfacing3-525Forecast cost +30%415Forecast cost +10%Compute for the profit for year 2.

Statement showing the value of profit/loss for the year 1 and 2 Particulars Year -1 Year -2…

Answered: Compute for the profit for year 2.

Business

Accounting

Compute for the profit for year 2.

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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Question

The terms of the arrangement require the operator to:
a. Construct a road-completing construction within two years
b. Maintain and operate the road for three years
c. Resurface the road at the end of Year 4
d. The government pays the operator P200 per year in Years 3 to 5 for making the road available to
the public
e. The road is turn-over to the government at the end of Year 5
f. The operators determine that the implied interest rate is 24.42%.
g. The operator finances the arrangement entirely with debt. The debt proceeds are taken as the
contract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year
5. The effective interest rate is 25.77%
The operator makes the following estimates:
Year
Contract Cost
Stand-alone selling price
Construction Services
1
70
Forecast cost +10%
2
80
Forecast cost +20%
Operation Services
Road resurfacing
3-5
25
Forecast cost +30%
4
15
Forecast cost +10%
Compute for the profit for year 2.

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