Eagle Limited has a three-year contract; at the 31 December 2020 the outcome of the contract cannot be reliably estimated. The cost incurred to date is $12m, expected cost to completion is $168m and the contract price is $240m. The project is 16% complete. At this stage only 80% of the cost to date is deemed recoverable. REQUIRED: Prepare the Statement of Expected Profit or Loss and the Statement of Comprehensive Income for the financial year ended 31 December 2019. Explain to the directors of the company in the form of a memo, how the above contract will be treated according to IFRS 15.
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- Suppose that a contract is started on January 1, 2018, with an estimated completion date of December 31, 2019. The final contract price is P1,500,000. In the first year covering January 1 to December 31, 2018: Cost incurred amounted to P600,000. Half the work on the contract was completed. Certificates of work completed have been issued to the value of P750,000. It is estimated with reasonable certainty that further costs to completion in 2019 will be P600,000. Requirements: 1. The contract is certified at what percentage of completion? 2. At Dec 31, 2018, the entity will recognize how much profit? 3. At Dec 31, 2018, the entity will recognize how much contract asset?Duke Ltd has a contract with a customer ongoing at the end of the financial year, 31 December 2020. Details of this contract are as follows:Total contract price £50,000Cost incurred to date £12,000Anticipated future costs £28,000Progress billing - Agreed price for the component completed £14,000Progress is measured using the output method under IFRS 15 Revenue from Contracts with Customers.What amount of revenue is able to be recognised for the year ended 31December 2020?a) £15,000b) £50,000c) £21,000d) £14,000How much is the Gross Profit/Loss Realized in 2018? Celestial Holdings Co. began constructing a condominium on January 1, 2017 for a contract price of P1,250,000. The entity has assured collection of its contract and the costs can be reliably estimated. For the year ended December 31, 2018, Celestial billed its client an additional 60% of the contract price. Data relating to the construction are as follows: 2017 2018 2019 Construction in Progress Estimated Cost to Complete 300,000 Cost Incurred 250,000 600,000 112,500 Excess of CIP over PB 25,000 (125,000)
- Q2. Malama Limited is considering whether to continue the work on an existing contract or to terminate it now and pay an agreed penalty of K90, 000, 000 to the client. This is being considered because the penalty is less than the anticipated contract loss. The following summary has been prepared: Expenditure to date Estimated future costs to completion in one (1) years' time Material Staffing Overheads Estimated total cost Contract value Estimated loss on contract The following information is also available: K'000 other contracts. 80, 000 50,000 90,000 K'000 150,000 220,000 370,000 200,000 80,000 Material Contracts have been exchanged for the purchase of the K60, 000, 000 materials. This is special purpose material which has no alternative use. If not used on this contract it will incur disposal costs of K10, 000, 000. Staffing Two specialists are employed on the contract each at K12, 500, 000 p.a. If the contract was terminated now they would each receive K7,000, 000 redundancy pay.…During 2019, Gulf Co. started a construction project with a total contract price of $3,500,000. Additional information is given below: 2019 2020 Actual costs incurred during the S1,350,000 S1,525,000 year Estimated remaining costs Billings to customers Collected from customers 1,350,000 1,200,000 2,300,000 1,000,000 2,400,000 What amount of gross profit should be recognized in 2020?Widjaja Company is accounting for a long-term construction contract using the percentage-of-completion method. It is a 4-year contract that is currently in its second year. The latest estimates of total contract costs indicate that the contract will be completed at a profit to Widjaja Company. Instructions a. What theoretical justification is there for Widjaja Company's use of the percentage-of-completion method? b. How would progress billings be accounted for? Include in your discussion the classification of progress billings in Widjaja Company financial statements. c. How would the income recognized in the second year of the 4-year contract be determined using the cost-to-cost method of determining percentage of completion? d. What would be the effect on earnings per share in the second year of the 4-year contract of using the percentage-of-completion method instead of the completed-contract method? Discuss.
- Zent construction has an contract for $3,700,000. Other details follow:Costs incurred during the year= $1,800,000Estimated costs to complete as of December 31= 1,200,000Billings during the year=1,650,000Collections during the year= 975,000 It uses the percentage of completion method For calendar 2020, what should report gross profit of?Culver Construction Company began work on a $402, 000 construction contract in 2020. During 2020, Culver incurred costs of $252,000, billed its customer for $210, 500, and collected $177,000. At December 31, 2020, the estimated additional costs to complete the project total $162, 405. Prepare Culver's journal entry to record profit or loss, if any, using (a) the percentage-of - completion method and (b) the completed - contract method.Archer Construction Company began work on a $420,000 construction contract in 2020. During 2020, Archer incurred costs of $278,000, billed its customer for $215,000, and collected $175,000. At December 31, 2020, the estimated additional costs to complete the project total $162,000. Prepare Archer's journal entry to record profit or loss, if any, using (a) the percentage-of-completion method and (b) the completed-contract method.
- Nathan Construction Inc. has consistently used the percentage-of-completion method of recognizing income. In 2020, Nathan started work on a P6,750,000 fixed price construction contract. The accounting records disclosed the following data for the year ended December 31, 2020: P 2,092,500 4,882,500 2,475,000 1,575,000 Costs incurred Estimated cost to complete Progress billings Collections How much loss should Nathan have recognized in 2020?8. How much is the Gross Profit/Loss Realized in 2018? * Triple Take Construction Co. began construction of a project in 2017 for a contract price of P9,600,000. The project is to be completed in 4 years or in the year 2021. The following are the details regarding the construction project 2017 2018 2019 Costs inenered to dnte Estimsted cost to complete Progess Billings to dnte Cash Collectiona for the year 2160,000 4,500,000 7,520,000 6840,000 5,500,000 1,690, 000 2,304,000 4,320,000 7,680,000 1,728.000 3,240,000 5,760,000 9. How much is the Gross Profit/Loss Realized in 2019? * Xurpas Homes entered into a construction agreement in 2018 for the construction of condominium buildings. The original contract price was P20,000,000 but a change order was issued in 2019 that increases the price by P2,000,000. The percentage of completion method is used by the company in recognizing revenue. The following are information regarding the company. 2018 10,200,000 10,200,000 9,800,000 8,760,000…1. During 2020, Bay Construction started a new construction job with a contract price of $750 million. Bay has a 12/31 fiscal year end. Bay has determined that the contract does not qualify for revenue recognition over time. The contract was completed on 12/31/22 with the following information ($ in millions): Costs incurred in the period (paid in cash) Estimated costs to complete at 12/31 Billings on contract in the period Cash collected in the period 2020 180.0 2021 2022 432.0 150.0 540.0 153.0 -0- 150 350 250 200 400 150 What is the amount of gross profit (loss) on the contract that Bay would recognize on the Income Statement in 2020, 2021 and 2022? You must show supporting work (calculations/explanations) to receive credit for your answers. Gross Profit (Loss) 2020 2021 2022