George Co. enters into a contract to build an apartment for Jungle Co. for a fixed fee of ₱20,000,000. At contract inception, George Co. assesses its performance obligations in the contract and concludes that it has a single performance obligation that is satisfied over time. George Co. determines that the measure of progress that best depicts its performance in the contract is input method based on costs incurred. George estimates that the total contract costs would amount to ₱16,000,000 over the construction period. George incurs contract costs of ₱2,000,000 during the year. How much gross profit is recognized for the year?

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Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required for the completion of the contract which takes different accounting periods. Thus, it is very much helpful for recognizing the costs associated with it and accounting in their specific accounting periods.