Revenue from LTCC - lets go cpa PDF

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Accounting Lessons with BCSV

Revenue from Construction Contracts Problem 1: (Percentage of Completion vs. Zero profit method) Tigreal Construction Corp. started a construction on a P40,000,000 road project. The contract period is five years starting January 1, 2016. The accounting records provided the following data:

Actual costs incurred each year Estimated cost to complete Progress billings Cash collections

2016

2017

2018

P11,250,000

P6,300,000

P7,950,000

26,250,000 15,000,000 13,500,000

21,450,000 5,000,000 7,000,000

17,000,000 8,000,000 7,200,000

2019

2020

P7,225,000 P5,275,000 5,775,000 9,000,000 8,100,000

3,000,000 4,200,000

Case 1: The outcome of the project can be estimated reliably. Compute for the following: 1. Realized gross profit (loss) for the years 2016 through 2020. 2. Percentage of completion as of December 31, 2016 through 2020. 3. Percentage completed for the years 2016 through 2020. 4. Construction revenue for the years 2016 through 2020. 5. What is the construction in progress account balance as of December 31, 2018? 6. How much is the contract asset or contract liability as of December 31, 2019? Case 2: The outcome of the project cannot be estimated reliably. 1. Realized gross profit (loss) for the years 2016 through 2020. 2. Construction revenue for the years 2016 through 2020. 3. What is the construction in progress account balance as of December 31, 2018? 4. How much is the contract asset or contract liability as of December 31, 2019? Problem 2: (Construction Contract with Variation; Variable Consideration) On January 1, 2019, FONOLLOSA Company entered into a contract with a customer to construct a new building. FONOLLOSA determines that control of the building is passed to the customer as it is constructed. Furthermore, the target date of completion is December 31, 2021. The contract price agreed upon by the parties is P20 million subject to the additional contractual provisions: ➢ Incentive of P30,000 will be provided to FONOLLOSA per week if FONOLLOSA completes the construction earlier than the target date. ➢ Penalty of P40,000 per week will be charged to FONOLLOSA if FONOLLOSA does not complete the construction within the target date. ➢ If the building is issued a green certification, FONOLLOSA will be entitled to additional consideration of P200,000. On December 31, 2019, FONOLLOSA determined that the best estimate of the variable consideration is using the "expected value method" for the timing of completion of the project. Based on the information available to FONOLLOSA as of this date, the following estimates were obtained: ➢ 60% probability to complete the project six weeks ahead of target date of completion. ➢ 20% probability to complete the project on time with no incentive or penalty. ➢ 20% probability to complete the project five weeks past target date of completion. As for the green certification, FONOLLOSA believes that it is highly probable that such certification will be obtained for the project. As of December 31, 2020, the estimates related ➢ 70% probability to complete the project ➢ 20% probability to complete the project ➢ 10% probability to complete the project

to the completion of the project were revised to: six weeks ahead of target date of completion. on time with no incentive or penalty. two weeks past target date of completion.

As for the green certification, FONOLLOSA believes that it is highly probable that such certification will be obtained for the project. The following summarizes construction costs for 2019 and 2020: Construction cost for the year Estimated cost to complete as of year-end

2019 P9,000,000 7,000,000

2020 P2,250,000 3,750,000

1. Assuming that the outcome of the project can be estimated reliably, how much is the realized gross profit (loss) for the year ended 2020 under PFRS 15?

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