On March 1, 2022, AGGREGATES Company enters a contract to build a hotel which is estimated to cost P31,200,000. The
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.
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On March 1, 2022, AGGREGATES Company enters a contract to build a hotel which is estimated to cost P31,200,000. The company recognizes construction revenue over time. Data on this project for 2022-2024 follow:
| Contract Billings | Costs incurred | Est'd Costs to complete | |
| 2022 | 10,500,000 | 5,460,000 | 20,540,000 |
| 2023 | 12,500,000 | 9,984,000 | 13,156,000 |
| 2024 | 14,440,000 | 15,756,000 | - |
The contract contains a penalty clause that penalizes the company a reduction of P70,000 from the contract price for every week of delay. In 2024, the contract was delayed for 8 weeks.
What is the gross profit for 2024?
A. 1,164,000 C. 1,724,000
B. 1,466,400 D. 1,824,000
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