ABC Co. a private contractor, wins a bid to construct a railway for the government. The terms of the arrange 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 opera 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 th resurfacing expenditure increases by P5,000 for each year that the road is used. The appropriate discount ra contract inception, ABC Co. identifies a single performance obligation for construction services. ABC Co. ma following estimates: Stand Alone Selling Price Forecast cost + 25% YEAR CONTRACT COST Construction Service 200.000

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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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:
Stand Alone Selling Price
Forecast cost + 25%
N/A
N/A
YEAR
CONTRACT COST
Construction Service
Operation Services
Road Resurface
200,000
15,000
10,000
2-5
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.
Transcribed Image Text: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: Stand Alone Selling Price Forecast cost + 25% N/A N/A YEAR CONTRACT COST Construction Service Operation Services Road Resurface 200,000 15,000 10,000 2-5 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.
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