Question 22 of 30. Ava Limited., which has a calendar year end, has entered into a non-cancellable fixed-price contract for $2.8 million beginning September 1, 2015, to build a road for a municipality. It has been estimated that the road construction will be complete by June 2017. The following data pertain to the construction period. 2015 2016 2017 Costs to date $867,000 $1,804,800 $2,346,000 Estimated costs to complete 1,683,000 1,015,200 0 Progress billings to date (non-refundable) 921,000 2,296,000 2,800,000 Cash collected to date 767,000 2,177,000 2,800,000 a) Calculate the amount of revenue to be recognized in 2015 and 2016.
Question 22 of 30.
Ava Limited., which has a calendar year end, has entered into a non-cancellable fixed-price contract for $2.8 million beginning September 1, 2015, to build a road for a municipality. It has been estimated that the road construction will be complete by June 2017. The following data pertain to the construction period.
| 2015 | 2016 | 2017 | |
| Costs to date |
$867,000
|
$1,804,800
|
$2,346,000 |
| Estimated costs to complete |
1,683,000
|
1,015,200
|
0 |
| Progress billings to date (non-refundable) |
921,000
|
2,296,000
|
2,800,000
|
| Cash collected to date |
767,000
|
2,177,000
|
2,800,000
|
a) Calculate the amount of revenue to be recognized in 2015 and 2016.
The accounting idea of matching revenues and costs is in line with the percentage of completion technique. Instead of waiting until the project is finished, it enables the recognition of income as work is accomplished. This spreads the income and related expenses across the course of the project, giving a more realistic picture of a company's financial success.
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