McCombs Contractors received a contract to construct a mental health facility for $1,800,000. Construction was begun in 2017 and completed in 2018. Cost and other data are presented below: 2017 2018 Costs incurred during the year $ 450,000 $1,100,000 Estimated costs to complete 1,050,000 0 Billings during the year 400,000 1,400,000 Cash collections during the year 300,000 1,500,000 Assume that McCombs recognizes revenue on this contract over time according to percentage of completion. Compute the amount of gross profit recognized during 2017 and 2018. 2017 2018 Contract price Actual costs to date Estimated costs to complete Total estimated costs Total Gross profit recognized
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
McCombs Contractors received a contract to construct a mental health facility for $1,800,000. Construction was begun in 2017 and completed in 2018. Cost and other data are presented below:
2017 2018
Costs incurred during the year $ 450,000 $1,100,000
Estimated costs to complete 1,050,000 0
Billings during the year 400,000 1,400,000
Cash collections during the year 300,000 1,500,000
Assume that McCombs recognizes revenue on this contract over time according to percentage of completion.
Compute the amount of gross profit recognized during 2017 and 2018.
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2017 |
2018 |
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Contract price |
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Actual costs to date |
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Estimated costs to complete |
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Total estimated costs |
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Total Gross profit recognized |
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