CHAPTER 7 - CONSTRUCTION CONTRACTS

PROBLEMS (2020 Edition)

Problem 1
1 0
2 1
3 0
4 1
5 0
6 1
7 0
8 0
9 1
10 0

Problem 2
1D
2D
3A
4B
5C
6D
7B
8A
9C
10 C

Problem 3
1a Gross Profit
20x1
Total contract price 20,000,000.00
Cost incurred to date 8,160,000.00
Estimated cost to complete 8,840,000.00
Estimated total contract costs 17,000,000.00
Expected gross profit 3,000,000.00
Multiplied by % of completion 0.48
Gross profit earned to date 1,440,000.00
Less: Gross profit in prior years
Gross profit for the year 1,440,000.00

Revenues
 20x1

Total contract price $20,000,000.00

Multiplied by % of completion 48.00%
Revenue to date $9,600,000.00
Less: Revenue recognized in the prior years -
Revenue for the year $9,600,000.00
Cost of construction -$8,160,000.00
Gross profit for the year $1,440,000.00

1b 20x1
Traditional Accounting
a) Incurrence of cost:
Construction in progress 8,160,000
Cash 8,160,000
b) Billing
Accounts receivable 10,000,000
Progress billing 10,000,000
c) Collection
Cash 9,500,000
Accounts receivable 9,500,000
d) Revenue Recognition
Cost of construction 8,160,000
Construction in progress 1,440,000
Revenue 9,600,000

20x2
Traditional Accounting
Construction in progress 7,320,000
Cash 7,320,000
Accounts receivable 7,000,000
Progress billing 7,000,000
Cash 6,650,000
Accounts receivable 6,650,000
Cost of construction 7,320,000
Construction in progress 1,080,000
Revenue 8,400,000
 20x3
Traditional Accounting
Construction in progress 1,920,000
Cash 1,920,000
Accounts receivable 3,000,000
Progress billing 3,000,000
Cash 3,850,000
Accounts receivable 3,850,000
Cost of construction 1,920,000
Construction in progress 80,000
Revenue 2,000,000
Progress billing 20,000,000
Construction in progress 20,000,000

1c Traditional Accounting
Construction in progress
8,160,000
1,440,000
12/31/x1 9,600,000
7,320,000
1,080,000
12/31/x2 18,000,000
1,920,000
80,000
20,000,000 20,000,000
- 12/31/x3

Progress billings
10,000,000 12/31/x1
7,000,000
17,000,000 12/31/x2
3,000,000
20,000,000 20,000,000
12/31/x3 -

Accounts receivable
10,000,000
9,500,000
12/31/x1 500,000
7,000,000 6,650,000
12/31/x2 850,000
 3,000,000 3,850,000
- 12/31/x3

STATEMENT OF FINANCIAL POSITIO

Traditional Accounting

Current Assets 20x1 20x2 20x3

Accounts Receivable 500,000 850,000 -
Construction Progress 18,000,000 -
Less: Porgress billings 17,000,000 -
Gross amt. due from customer 1,000,000 -
Total 500,000 1,850,000 -

Current Liabilities
Construction in progress 9,600,000 - -
Less:Progress billings 10,000,000 - -
Gross amt. due to customer 400,000 - -
Total 400,000 - -

STATEMENT OF PROFIT OR LOSS

Traditional Accounting
20x1 20x2 20x3
Revenue 9,600,000 8,400,000 2,000,000
Cost of construction (8,160,000) (7,320,000) (1,920,000)
Gross profit 1,440,000 1,080,000 80,000

2a 20x1 20x2 20x3

Revenue 8,160,000 7,320,000 4,520,000
Contract costs incurred per yr. (8,160,000) (7,320,000) (4,520,000)
Gross Profit for the year - - 2,600,000

2b 20x1
Traditional Accounting
a) Incurrence of cost:
Construction in progress 8,160,000
Cash 8,160,000
b) Billing
Accounts receivable 10,000,000
Progress billing 10,000,000
 c) Collection
Cash 9,500,000
Accounts receivable 9,500,000
d) Revenue Recognition
Cost of construction 8,160,000
Revenue 8,160,000

20x2
Traditional Accounting
Construction in progress 7,320,000
Cash 7,320,000
Accounts receivable 7,000,000
Progress billing 7,000,000
Cash 6,650,000
Accounts receivable 6,650,000
Cost of construction 7,320,000
Revenue 7,320,000

20x3
Traditional Accounting
Construction in progress 1,920,000
Cash 1,920,000
Accounts receivable 3,000,000
Progress billing 3,000,000
Cash 3,850,000
Accounts receivable 3,850,000
Cost of construction 1,920,000
Construction in progress 2,600,000
Revenue 4,520,000
Progress billing 20,000,000
Construction in progress 20,000,000

2c Traditional Accounting
Construction in progress
8,160,000
 12/31/x1 8,160,000
7,320,000

12/31/x2 15,480,000
1,920,000
2,600,000
20,000,000 20,000,000
- 12/31/x3

Progress billings
10,000,000 12/31/x1
7,000,000
17,000,000 12/31/x2
3,000,000
20,000,000 20,000,000
12/31/x3 -

Accounts receivable
10,000,000
9,500,000
12/31/x1 500,000
7,000,000 6,650,000
12/31/x2 850,000
3,000,000 3,850,000
- 12/31/x3

STATEMENT OF FINANCIAL POSITIO

Traditional Accounting

Current Assets 20x1 20x2 20x3

Accounts Receivable 500,000 850,000 -
Construction Progress -
Less: Porgress billings -
Gross amt. due from customer -
Total 500,000 850,000 -

Current Liabilities
Construction in progress 8,160,000 15,480,000 -
Less:Progress billings 10,000,000 17,000,000 -
Gross amt. due to customer 1,840,000 1,520,000 -
 Total 1,840,000 1,520,000 -

STATEMENT OF PROFIT OR LOSS

Traditional Accounting
20x1 20x2 20x3
Revenue 8,160,000 7,320,000 4,520,000
Cost of construction (8,160,000) (7,320,000) (1,920,000)
Gross profit - - 2,600,000

Problem 4
1B
2A
3C
4C
5A
6D
7B
8A
9C
10 C
11 A
12 C
13 C
14 A
15 C

Problem 5
1 Step 1: Identify the contract with the customer
a. Yes, the contract qualifies for the acounting under PFRS 15 because the it contained all the requir
Requirements of Step 1
a. The contracting parties have approved and are committed to perform their respective obligations.
b. Each of the party's rights with regards to the goods or services can be identified.
c. The payment terms can also be identified.
d. The consideration in the contract is probable of collection.
Step 2: Identify the performance obligations in the contract
b. The promises are treated as a single performance obligation. This is in combination of the promise
This is due to the fact that this is a distinct bundle of goods and services because:
a. The contract requires that the customer purchase all of these in a bundle which means they canno
And Entity X does not regularly sell these goods and services separately as well.
b. The promises are not separately identifiable from the other promises because:
i. Each good or service is an input to a combined output specified by the customer.
 ii. Each good or service significantly modifies another good or service promised in the contract.
iii. Each good or service is highly interrelated with the other goods or services promised in the contr
c. Entity X will satisfy the the performance obligation at a point in time.
This is because:
a. The control of the lot, the design, and the house during the construction period, remains with Entit
b. In case of default, Entity X gets the properties
c. The entity’s performance creates an asset with an alternative use. Entity X can resell forfeited prop
d. The entity does not have an enforceable right to payment for performance completed to date. This
Step 3: Determine the transaction price
d. The contract price is 6,000,000 pesos. Entity X does not need to discount the installment payment
The price includes a variable consideration, which was the 2% reduction of contract price for every m
However, because the entity does not expect any delay to the contruction, it is not required to estima
Step 4: Allocate the transaction price to the performance obligations
e. The price is allocated to the entirety of the single performance obligation.
This is because the promises are a distinct bundle of goods and services and so the allocation of the
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
f. The revenue will be recognized at the point in time when control over the property is transferred to
This is because the performance obligation is satisfied at a point in time.
g. Journal Entries for April 1, 20x1.
Cash (6M x 20%)
Receivable (6M x 80%)
Contract liability

2 Step 1: Identify the contract with the customer

a.) Yes
The contract is qualified for accounting under PFRS 15 since all the requirements ar

Step 2: Identify the performance obligation in the contract

b.) Single performance obligation
They provided various services such as architectural, engineering, electrical, others
Evidence by the fact that each of the services are integral part according to article 6
Step 3: Determine the transaction price
c.) Transaction price = fixed fee of 8,000,000
Accounting for variable consideration
not applicable
Significant Financing
The due are within 2 weeks after billing. Hence, no significant financing component

Step 4: Allocate the transaction price to the performance obligation

d.) The transaction price should be allocated entirely to the single performance obligatio
Step 5: Recognize revenue when the entity satisfies a performance obligation
e.) Entity Y should recognize the revenue of the contract as over the construction per

f.) 09/01/x1 Cash (8M x 15%)

Contract liability
To record the mobilization fee
recieved at contract inception
Oct-Dec 20x1 Contract cost
Cash
To record the contract cost

Percentage of completion in 20x1 computation:

Total contract price
(a) Cost incurred to date
Estimated cost to complete
(b) Estimated total contract cost (bills of materials)
Expected gross profit from contract
Multiplied by: % of completion (a/b)
Gross profit earned to date
Less: Gross profit earned at previous years
Gross profit for the year

12/20/x1 Receivable (8M x 35%)

Contract liability
to record first quarterly billing

12/23/x1 Cash (2.8M x 90%)

Receivable
to record the collection of billing

Revenue and cost construction in 20x1 computations:

Total contract price
Multiplied by: % of completion
Revenue to date
Less: Revenue regognized in previous years
Revenue for the year
Cost of construction (squeezed)
Gross profit for the year

Year end adjusting entries:

12/31/x1 Contract liability
 Revenue

12/31/x1 Cost of construction

Contract cost

g.)
Entity Y
Statement of Profit or loss
For the year ended December 31, 20x1

Current Assets
Receivable (2.8M-2.52M)
Total Current Assets

Current Liabilities
Contract Liability (1.2M+2.8M-2.8M)

Total Current Liabilities

Problem 6
1B
2D
3D
4B
5D
6B
7C
8C
9A
10 B
11 Estimated total contract costs:
Direct materials 5,500,000
Direct labor 2,800,000
Costs of design directly related to the contract 200,000
Costs of technical assistance not directly related to the 50,000
contract
Costs (properly allocated)
of rectification work chargeable to customer 300,000
Administrative costs reimbursable by the customer 130,000
Insurance costs 20,000
Construction overheads 1,000,000
Estimated total contract costs 10,000,000
Total costs incurred to date:
 Costs of materials used in the construction 3,000,000
Costs of construction labor 1,500,000
Costs of design directly related to the contract 100,000
Costs of technical assistance not directly related to the 25,000
contract (properly
Administrative allocated)
costs reimbursable by the customer 120,000
Insurance costs 15,000
Construction overheads 240,000
Total costs incurred to date 5,000,000
Percentage of completion = 5,000,000 ÷ 10,000,000
Percentage of completion = 50%

12 20x1 20x2
Total contract price 10,000,000 10,000,000
Costs incurred to date 3,150,000 5,680,000
Estimated costs to complete 3,850,000 1,420,000
Estimated total contract costs 7,000,000 7,100,000
Expected gross profit 3,000,000 2,900,000
Multiply by: % completion 45% 80%
Gross profit earned to date 1,350,000 2,320,000
Less: Gross profit in prior yrs. - -1,350,000
Gross profit for the year 1,350,000 970,000

20x1 20x2
Total contract price 10,000,000 10,000,000
Multiply by: % of completion 45% 80%
Revenue to date 4,500,000 8,000,000
Less: Revenue recognized in prior yrs. - -4,500,000
Revenue for the year 4,500,000 3,500,000
Cost of construction -3,150,000 -2,530,000
Gross profit for the year 1,350,000 970,000

13 20x1 20x2 20x3

Revenue (a) 3,150,000 2,530,000 4,320,000
Contract costs -3,150,000 -2,530,000 -1,440,000
incurred
Gross per for
profit yr. - - 2,880,000

STATEMENT OF FINANCIAL POSITIO

Traditional Accounting

Current Assets 20x1 20x2 20x3

Accounts Receivable 400,000 900,000 -
Construction Progress 4,500,000 -
Less: Porgress billings 4,000,000 -
Gross amt. due from customer 500,000 -
Total 900,000 900,000 -

Current Liabilities
Construction in progress 8,000,000
Less:Progress billings 9,000,000
Gross amt. due to customer 1,000,000
Total - 1,000,000 -

STATEMENT OF PROFIT OR LOSS

Traditional Accounting
20x1 20x2 20x3
Revenue 4,500,000 3,500,000 2,000,000
Cost of construction (3,150,000) (2,530,000) (1,440,000)
Gross profit 1,350,000 970,000 560,000

20x1
Traditional Accounting
a) Incurrence of cost:
Construction in progress 3,150,000
Cash 3,150,000
b) Billing
Accounts receivable 4,000,000
Progress billing 4,000,000
c) Collection
Cash 3,600,000
Accounts receivable 3,600,000
d) Revenue Recognition
Cost of construction 3,150,000
Revenue 3,150,000

20x3
Traditional Accounting
a) Incurrence of cost:
Construction in progress 2,530,000
 Cash 2,530,000
b) Billing
Accounts receivable 5,000,000
Progress billing 5,000,000
c) Collection
Cash 4,500,000
Accounts receivable 4,500,000
d) Revenue Recognition
Cost of construction 2,530,000
Revenue 2,530,000

20x3
Traditional Accounting
a) Incurrence of cost:
Construction in progress 1,440,000
Cash 1,440,000
b) Billing
Accounts receivable 1,000,000
Progress billing 1,000,000
c) Collection
Cash 1,900,000
Accounts receivable 1,900,000
d) Revenue Recognition
Cost of construction 1,440,000
Construction in progress 2,880,000
Revenue 4,320,000

Progress Billing 10,000,000

Construction in progress 10,000,000

Traditional Accounting
Construction in progress
3,150,000

12/31/x1 3,150,000
2,530,000

12/31/x2 5,680,000
 1,440,000
2,880,000
10,000,000 10,000,000
- 12/31/x3

Progress billings
4,000,000 12/31/x1
5,000,000
9,000,000 12/31/x2
1,000,000
10,000,000 10,000,000
12/31/x3 -

Accounts receivable
4,000,000
3,600,000
12/31/x1 400,000
5,000,000 4,500,000
12/31/x2 900,000
1,000,000 1,900,000
- 12/31/x3

STATEMENT OF FINANCIAL POSITIO

Traditional Accounting

Current Assets 20x1 20x2 20x3

Accounts Receivable 400,000 900,000 -
Construction Progress -
Less: Porgress billings -
Gross amt. due from customer -
Total 400,000 900,000 -

Current Liabilities
Construction in progress 3,150,000 5,680,000
Less:Progress billings 4,000,000 9,000,000
Gross amt. due to customer 850,000 3,320,000
Total 850,000 3,320,000 -

STATEMENT OF PROFIT OR LOSS

Traditional Accounting
20x1 20x2 20x3
 Revenue 3,150,000 2,530,000 4,320,000
Cost of construction (3,150,000) (2,530,000) (1,440,000)
Gross profit - - 2,880,000

14 20x1 20x2 20x3

Contract price 8,000,000 8,000,000 8,000,000
Costs incurred 2,850,000 6,520,000 8,120,000
to date (a) costs
Estimated 1,630,000 -
4,275,000
to completetotal
Estimated 7,125,000 8,150,000 8,120,000
contract
Expectedcosts
profit 875,000 -150,000 -120,000
(loss)
20x1 20x2 20x3
Total contract price 8,000,000 8,000,000 8,000,000
Estimated total contract costs -7,125,000 -8,150,000 -8,120,000
Expected profit (loss) 875,000 -150,000 -120,000
Multiply by: % of completion (b) 40% N/A 100%
Profit (loss) to date 350,000 -150,000 -120,000
Profit (loss) in prior yrs. - -350,000 150,000
Profit (loss) for the year 350,000 -500,000 30,000

20x1 20x2
Total contract price 8,000,000 8,000,000
Multiply by: % of completion (c) 40% 80%
Revenue to date 3,200,000 6,400,000
Revenue in prior years - -3,200,000
Revenue for the year 3,200,000 3,200,000
Costs of construction -2,850,000 -3,670,000
Gross profit (loss) for the year 350,000 -470,000
Loss on onerous contract (d) - -30,000
Gain on reversal of provision
Profit (loss) for the year 350,000 -500,000

15
20x1
Total contract price (1) 6,000,000
Costs incurred to date (2) 1,350,000
Estimated costs to complete (given) 2,400,000
Estimated total contract costs 3,750,000
Expected gross profit from contract 2,250,000
Multiply by: Percentage of completion (a) ÷ (b) 36%
Gross profit earned to date 810,000
 Less: Gross profit earned in previous years -
Gross profit for the year 810,000

20x1 20x2
Total contract 6,000,000 6,500,000
price
Multiply by: 36% 95%
Percentage
Revenue to of
date 6,175,000
2,160,000
Less: Revenue - -2,160,000
recognized
Revenue for in
2,160,000 4,015,000
the
Costyear
of -2,260,000
-1,350,000
construction
Gross profit for 810,000 1,755,000
the year

16 20x1 20x2
Total contract price 10,000,000 10,000,000
Estimated total contract costs -6,000,000 -6,000,000
Expected total profit from constru 4,000,000 4,000,000
Multiply by: % of completion 42% 80%
Gross profit to date 1,680,000 3,200,000
Gross profit recognized in prior y - -1,680,000
Gross profit for the year 1,680,000 1,520,000
20x1 20x2
Total contract price 10,000,000 10,000,000
Multiply by: % of completion 42% 80%
Revenue to date 4,200,000 8,000,000
Revenue in prior years - -4,200,000
Revenue 4,200,000 3,800,000
Cost of construction (squeeze) -2,520,000 -2,280,000
Gross profit for the year (see abo 1,680,000 1,520,000
Impairment loss on receivable -400,000
Profit for the year 1,680,000 1,120,000
 20x2 20x3
20,000,000.00 20,000,000.00
15,480,000.00 17,400,000.00
1,720,000.00 -
17,200,000.00 17,400,000.00
2,800,000.00 2,600,000.00
0.90 1.00
2,520,000.00 2,600,000.00
1,440,000.00 2,520,000.00
1,080,000.00 80,000.00
 20x2 20x3

$20,000,000.00 $20,000,000.00
90.00% 100.00%
$18,000,000.00 $20,000,000.00
$9,600,000.00 $18,000,000.00
$8,400,000.00 $2,000,000.00
-$7,320,000.00 -$1,920,000.00
$1,080,000.00 $80,000.00

20x1
PFRS 15
a) Incurrence of cost:
Contract costs 8,160,000
Cash 8,160,000
b) Billing
Receivable 10,000,000
Contract liability 10,000,000
c) Collection
Cash 9,500,000
Receivable 9,500,000
d) Revenue Recognition
Contract liability 9,600,000
Revenue 9,600,000

Cost of construction 8,160,000

Contract costs 8,160,000

20x2
PFRS 15
Contract costs 7,320,000
Cash 7,320,000
Receivable 7,000,000
Contract liability 7,000,000
Cash 6,650,000
Receivable 6,650,000
Contract liability 8,400,000
Revenue 8,400,000
Cost of construction 7,320,000
Contract costs 7,320,000
20x3
PFRS 15
Contract costs 1,920,000
Cash 1,920,000
Receivable 3,000,000
Contract liability 3,000,000
Cash 3,850,000
Receivable 3,850,000
Contract liability 2,000,000
Revenue 2,000,000
Cost of construction 1,920,000
Contract costs 1,920,000

PFRS 15
Contract costs
8,160,000
8,160,000
12/31/x1 -
7,320,000
7,320,000
12/31/x2 -
1,920,000
1,920,000
- 12/31/x3

Contract liability
4,000,000
4,500,000
12/31/x1 500,000
3,500,000 5,000,000
1,000,000 12/31/x2
2,000,000 1,000,000
12/31/x3 -

Receivable
4,000,000
3,600,000
12/31/x1 400,000
5,000,000 4,500,000
 12/31/x2 900,000
1,000,000 1,900,000
- 12/31/x3

ENT OF FINANCIAL POSITION

PFRS 15

Current Assets 20x1 20x2 20x3

Receivable 500,000 850,000 -
Contract asset 1,000,000 -

Total 500,000 1,850,000 -

Current Liabilities
Contract Liability 400,000 - -

Total 400,000 - -

MENT OF PROFIT OR LOSS

PFRS 15
20x1 20x2 20x3
Revenue 9,600,000 8,400,000 2,000,000
Cost of construction (8,160,000) (7,320,000) (1,920,000)
Gross profit 1,440,000 1,080,000 80,000

* 20,000,000
(8,160,000)
(7,320,000)
4,520,000

20x1
PFRS 15
a) Incurrence of cost:
Contract costs 8,160,000
Cash 8,160,000
b) Billing
Receivable 10,000,000
Contract liability 10,000,000
 c) Collection
Cash 9,500,000
Receivable 9,500,000
d) Revenue Recognition
Contract liability 8,160,000
Revenue 8,160,000

Cost of construction 8,160,000

Contract costs 8,160,000

20x2
PFRS 15
Contract costs 7,320,000
Cash 7,320,000
Receivable 7,000,000
Contract liability 7,000,000
Cash 6,650,000
Receivable 6,650,000
Contract liability 7,320,000
Revenue 7,320,000
Cost of construction 7,320,000
Contract costs 7,320,000

20x3
PFRS 15
Contract costs 1,920,000
Cash 1,920,000
Receivable 3,000,000
Contract liability 3,000,000
Cash 3,850,000
Receivable 3,850,000
Contract liability 4,520,000
Revenue 4,520,000
Cost of construction 1,920,000
Contract costs 1,920,000

PFRS 15
Contract costs
8,160,000
8,160,000
 12/31/x1 -
7,320,000
7,320,000
12/31/x2 -
1,920,000
1,920,000
- 12/31/x3

Contract liability
10,000,000
8,160,000
1,840,000 12/31/x1
7,320,000 7,000,000
1,520,000 12/31/x2
4,520,000 3,000,000
12/31/x3 -

Receivable
10,000,000
9,500,000
12/31/x1 500,000
7,000,000 6,650,000
12/31/x2 850,000
3,000,000 3,850,000
- 12/31/x3

ENT OF FINANCIAL POSITION

PFRS 15

Current Assets 20x1 20x2 20x3

Receivable 500,000 850,000 -
Contract asset -

Total 500,000 850,000 -

Current Liabilities
Contract Liability 1,840,000 1,520,000 -
 Total 1,840,000 1,520,000 -

MENT OF PROFIT OR LOSS

PFRS 15
20x1 20x2 20x3
Revenue 8,160,000 7,320,000 4,520,000
Cost of construction (8,160,000) (7,320,000) (1,920,000)
Gross profit - - 2,600,000

e the it contained all the requirements of Step 1.

m their respective obligations.

be identified.

in combination of the promise to transfer the house, provide the design of the house, and the construction of the house itself.
s because:
ndle which means they cannot benefit from the lot, the house design, and the house separately.
ly as well.
because:
 romised in the contract.
ervices promised in the contr

ion period, remains with Entity X.

ntity X can resell forfeited properties without a lot of modification because the product is not designed uniquely for the customer
mance completed to date. This is because of the monthly payments.

count the installment payments because they are due within a year.
n of contract price for every month of delay in the completion of the construction.
on, it is not required to estimate the variable consideration.
ns
tion.
es and so the allocation of the prices to each of the promises is not needed.
ormance obligation
the property is transferred to the customer and the customer acepts it.
e.

1,200,000
4,800,000
6,000,000

5 since all the requirements are being met of step 1.

engineering, electrical, others. Hence, it is a single performance obligation since the services are not being individually distinct.
gral part according to article 6

nificant financing component in the contract.

n
e single performance obligation with the agreed specifications in completing the construction.
e obligation
as over the construction period.

1,200,000
1,200,000
ecord the mobilization fee
ved at contract inception

ecord the contract cost

8,000,000
2,422,000
-
6,920,000
1,080,000
35%
378,000
-
378,000

2,800,000
2,800,000
cord first quarterly billing

2,520,000
2,520,000
cord the collection of billing

ons:
8,000,000
35%
2,800,000
-
2,800,000
-2,422,000
378,000

2,800,000
 2,800,000

2,422,000
2,422,000

Entity Y
s Statement of profit or loss
1, 20x1 For the year ended December 31,20x1

Revenue
280,000 Cost of constuction
280,000 Gross Profit
Other operating expenses
Profit for the year
1,200,000

1,200,000
 20x3
10,000,000
7,120,000
-
7,120,000
2,880,000
100%
2,880,000
-2,320,000
560,000

20x3
10,000,000 10,000,000
80% 100%
8,000,000 10,000,000
-4,500,000 -8,000,000
3,500,000 2,000,000
-2,530,000 -1,440,000
970,000 560,000

ENT OF FINANCIAL POSITION

PFRS 15

Current Assets 20x1 20x2 20x3

Receivable 400,000 900,000 -
 Contract asset 500,000 -

Total 900,000 900,000 -

Current Liabilities
Contract Liability 1,000,000 -

Total 1,000,000 -

MENT OF PROFIT OR LOSS

PFRS 15
20x1 20x2 20x3
Revenue 4,500,000 3,500,000 2,000,000
Cost of construction 3,150,000 2,530,000 1,440,000
Gross profit 1,350,000 970,000 560,000

20x1
PFRS 15
a) Incurrence of cost:
Contract costs 3,150,000
Cash 3,150,000
b) Billing
Receivable 4,000,000
Contract liability 4,000,000
c) Collection
Cash 3,600,000
Receivable 3,600,000
d) Revenue Recognition
Contract liability 3,150,000
Revenue 3,150,000

Cost of construction 3,150,000

Contract costs 3,150,000

20x3
PFRS 15
a) Incurrence of cost:
Contract costs 2,530,000
 Cash 2,530,000
b) Billing
Receivable 5,000,000
Contract liability 5,000,000
c) Collection
Cash 4,500,000
Receivable 4,500,000
d) Revenue Recognition
Contract liability 2,530,000
Revenue 2,530,000

Cost of construction 2,530,000

Contract costs 2,530,000

20x3
PFRS 15
a) Incurrence of cost:
Contract costs 1,440,000
Cash 1,440,000
b) Billing
Receivable 1,000,000
Contract liability 1,000,000
c) Collection
Cash 1,900,000
Receivable 1,900,000
d) Revenue Recognition
Contract liability 4,320,000

Revenue 4,320,000

Cost of construction 1,440,000

Contract costs 1,440,000

PFRS 15
Contract costs
3,150,000
3,150,000
12/31/x1 -
2,530,000
2,530,000
12/31/x2 -
 1,440,000
1,440,000
- 12/31/x3

Contract liability
4,000,000
3,150,000
850,000 12/31/x1
2,530,000 5,000,000
3,320,000 12/31/x2
4,320,000 1,000,000
12/31/x3 -

Receivable
4,000,000
3,600,000
12/31/x1 400,000
5,000,000 4,500,000
12/31/x2 900,000
1,000,000 1,900,000
- 12/31/x3
ENT OF FINANCIAL POSITION
PFRS 15

Current Assets 20x1 20x2 20x3

Receivable 400,000 900,000 -
Contract asset -

Total 400,000 900,000 -

Current Liabilities
Contract Liability 850,000 3,320,000 -

Total 850,000 3,320,000 -

MENT OF PROFIT OR LOSS

PFRS 15
20x1 20x2 20x3
Revenue 3,150,000 3,500,000 4,320,000
Cost of construction (3,150,000) 2,530,000 (1,440,000)
Gross profit - - 2,880,000

20x3
8,000,000
100%
8,000,000
-6,400,000
1,600,000
-1,600,000
-
-
30,000
30,000

20x2
6,500,000
3,610,000
190,000
3,800,000
2,700,000
95%
2,565,000
-810,000
1,755,000
ruction of the house itself.
ed uniquely for the customer.

t being individually distinct.

t or loss
ember 31,20x1

2,800,000
-2,422,000
378,000
-
378,000
Problem 4
1 20,000,000 x 2/16 = 2,500,000

2 20x1 20x2
Total contract price 3,000,000 3,000,000
Multiply by: % of completion 20% 60%
Contract revenue to date 600,000 1,800,000
Contract revenue in prior years - -600,000
Contract revenue for the year 600,000 1,200,000
Cost of construction (Squeeze) -450,000 -990,000
Profit for the year 150,000 210,000

3 20x1 20x2
Total contract price 9,000,000 9,000,000
Costs incurred to date 3,900,000 6,300,000
Estimated total contract costs 7,800,000 8,100,000
Expected profit 1,200,000 900,000
Multiply by % of completion a/b 50% 77.7778%
Profit to date 600,000 700,000
Profit recognized in prior years (600,000)
Profit for the year 600,000 100,000

20x1 20x2
Total contract price 9,000,000 9,000,000
Multiply by % of completion 50% 77.7778%
Contract revenue to date 4,500,000 7,000,000
Contract revenue in prior years (4,500,000)
Contract revenue for the year 4,500,000 2,500,000
Cost of construction (SQUEEZE METHOD) (3,900,000) (2,400,000)
Profit for the year 600,000 100,000

4 20x1 20x2
Contract revenue for the year 3,900,000 2,400,000
Cost of construction (3,900,000) (2,400,000)
Profit (loss) for the year 0 0

5 There's no revene. During the course of construction, the cost of construction and gross profit are a
They are recognized only when the construction is completed and the constructed building's legal t

6 20x1 20x2
Contract Price 18,000,000 18,000,000
 Estimated Total Contracts Costs 12,000,000 12,300,000
Espected total gross profit 6,000,000 5,700,000
Percentage of Completion 25% 68%
Gross profit to date 1,500,000 3,684,000
Gross profit for the prior years -1,500,000
Gross profit for the year 1,500,000 2,376,000

Costs incurred to date 3,000,000 8,364,000

Estimated total contract costs 12,000,000 12,300,000
Percentage of completion 25% 68%

7 Traditional Accounting 20x1

Contact price 8,000,000
Contact costs incurred to date -1,830,000
Estimated costs to complete -4,270,000
Estimated total contract costs -6,100,000
Expected total gross profit 1,900,000
Percentage of completion 30%
Gross profit to date 570,000
Gross profit in prior years
Gross profit for the year 570,000

IFRS 15 20x1
Contract price 8,000,000
Percentage of completion 30%
Revenue to date 2,400,000
Revenue in prior years
Revenue for the year 2,400,000

8 20x1
Total contract price 5,000,000
Cost incurred to date -1,425,000
Estimated costs to complete -3,325,000
Estimated total contract costs -4,750,000
Estimated total profts (loss) 250,000
Percentage of completion 30%
Profit (loss) to date 75,000
Profit (loss) in prior years
Profit or loss for the year 75,000

20x1
 Total contract price 5,000,000
Percentage of completion 30%
Revenue to date 1,500,000
Revenue in prior years
Revenue for the year 1,500,000
Construction costs -1,425,000
Gross profit (loss) for the year 75,000
Loss provision/Reversal
Net profit (loss) for the year 75,000

9 20x1
Total Contract Price 5,000,000
Costs incurred to date 1,425,000
Estimated costs to complete 3,325,000
Estimated total contract costs 4,750,000
Expected total profit (loss) 250,000
Multiply: % of completion 30%
Profit (loss) to date 75000
Profit (loss) in prior years
Profit (loss) for the year 75000

Total Contract Price 5,000,000

% of Completion 30%
Revenue to date 1500000
Revenue in prior years
Revenue for the year 1500000
Construction Costs 1,425,000
Gross profit (loss) for the year 75,000
Loss provision
Net Profit (loss) for the year 75,000
Answer: C. -30,000

10 20x1
Costs incurred to date (2,250,000 x 40%) 900,000
Estimated Costs to complete (2,250,000-900,000) 1,350,000
Estimated total contract costs 2,250,000
% of completion 40%
Answer: C. 1,350,000

11 20x1 20x2
 Total contract price 3,000,000 3,000,000
Cost incurred to date 1,800,000
Estimated costs to complete 600,000
Estimate total contract costs 2,250,000 2,400,000
Expected profit 750,000 600,000
Multiply by: % of completion 40% 75%
Profit to date 300,000 450,000
Profit recognized in prior years - (300,000)
Profit for the year 300,000 150,000

Total contract price 3,000,000 3,000,000

Multiply by: % of completion 40% 75%
Contract revenue to date 1,200,000 2,250,000
Contract revenue in prior years - (1,200,000)
Contract revenue for the year 1,200,000 1,050,000
Cost of construction (900,000) (900,000)
Profit for the year 300,000 150,000

12 20x1 20x2
Costs incurred to date 10,500,000 24,800,000
Estimated costs to complete 19,500,000 6,200,000
Estimated total contract costs 30,000,000 31,000,000
Multiply by: Cost + Variation fee 115% 120%
Estimated total contract price 34,500,000 37,200,000
Multiply by: % of completion 35% 80%
Revenue to date 12,075,000 29,760,000
Less: Revenue in prior years - (12,075,000)
Revenue for the year 12,075,000 17,685,000
Cost of construction (10,500,000) (14,300,000)
Gross profit for the year 1,575,000 3,385,000

13 20x1 20x2
Total Contract Price 4,000,000 4,000,000
Estimated Total Construction Costs (3,000,000) (3,000,000)
Expected Gross Profit on Completion 1,000,000 1,000,000
Multiply by: % of Completion 35% 90%
Gross Profit to date 350,000 900,000
Gross Profit in Prior Years (350,000)
Gross Profit for the year 350,000 550,000
 Total Contact Price 4,000,000 4,000,000
Percentage of Completion 35% 90%
Revenue to Date 1,400,000 3,600,000
Revenue in Prior Years (1,400,000)
Revenue for the Year 1,400,000 2,200,000
Construction Costs (1,050,000) (1,650,000)
Gross Profit for the Year 350,000 550,000

14 20x1 20x2
Cost Incurred to date 1,536,000 11,528,000
Divide by: Estimated Total Contract Cost 12,800,000 13,100,000
Percentage of Completion 12% 88%

Total Contract Price 15,000,000 15,750,000

Estimated Total Contract Costs (12,800,000) (13,100,000)
Expected Total Profit 2,200,000 2,650,000
Multiply by: % of Completion 12% 88%
Profit(loss) to date 264,000 2,332,000
Profit(loss) in Prior Years (264,000)
Profit(loss) for the year 264,000 2,068,000

Total Contact Price 15,000,000 15,750,000

Percentage of Completion 12% 88%
Revenue to Date 1,800,000 13,860,000
Revenue in Prior Years (1,800,000)
Revenue for the Year 1,800,000 12,060,000
Construction Costs (1,536,000) (9,992,000)
Profit(loss) for the Year 264,000 2,068,000

15 20x1 20x2
Construction in progress, ending balance 122,000 364,000
Contract costs incurred to date (105,000) (297,000)
Profit to date 17,000 67,000
Profit in previous years - (17,000)
Profit for the year 17,000 50,000

Revenue for the year (Squeeze) 122,000 242,000

Cost of construction (105,000) (192,000)
Profit for the year 17,000 50,000
construction and gross profit are already recognized.
d the constructed building's legal title is transferred to the customer.

20x3
18,000,000
12,280,000
5,720,000
100%
5,720,000
-3,876,000
1,844,000

12,280,000
12,280,000
100%

20x2 20x3
8,000,000 8,000,000 Cost incurred to date 20x2
-4,840,000 -6,000,000 Gross profit (20x1)
-1,210,000 Gross profit (20x2)
-6,050,000 -6,000,000 Dec. 31, 20x2
1,950,000 2,000,000
80% 100% Construction in progress - 12/31/x2
1,560,000 2,000,000 Progress billings - 12/31/x2
-570,000 -1,560,000 Gross amount due to customer - 12/31/x2
990,000 440,000

20x2 20x3
8,000,000 8,000,000 Contract Liability
80% 100%
6,400,000 8,000,000 Revenue (20x1) 2,400,000
-2,400,000 -6,400,000 Revenue (20x2) 4,000,000
4,000,000 1,600,000

20x2 20x3
5,000,000 5,000,000
-4,040,000 -5,080,000
-1,010,000
-5,050,000 -5,080,000
-50,000 -80,000
100%
-50,000 -80,000
-75,000 50,000
-125,000 -30,000

20x2 20x3
 5,000,000 5,000,000 Costs incurred to date
80% 100% Estimated costs to complete
4,000,000 5,000,000 Estimated total contract costs
-1,500,000 -4,000,000 Percentage of completion
2,500,000 1,000,000
-2,615,000 -1,040,000
-115,000 -40,000
-10,000 10,000
-125,000 -30,000

20x2 20x3
5,000,000 5,000,000
4,040,000 5,080,000
1,010,000 -
5,050,000 5,080,000
-50,000 -80,000
N/A 100%
-50,000 -80000
-75,000 50,000
-125,000 -30000

5,000,000 5,000,000
80% 100%
4000000 5000000
-1,500,000 -4,000,000
2,500,000 1,000,000
2,615,000 1,040,000
-115,000 -40,000
-10,000 10,000
-125,000 -30,000
 20x3
30,800,000
-
30,800,000
120%
36,960,000
100%
36,960,000
(29,760,000)
7,200,000
(6,000,000)
1,200,000
Initial Estimate 12,800,000
Additional Costs from Modification 300,000
Estimated Total Contract Cosr 20x2 13,100,000

Original Contract Price 15,000,000

Multiply by: 105%
Total Contract Price 15750000
 Construction in progress Billings
4,840,000 20x1 4,000,000
570,000 20x2 3,000,000
990,000 7,000,000
6,400,000

ess - 12/31/x2 6,400,000

-7,000,000
ustomer - 12/31/x2 -600,000

Contract Liability
4,000,000 Billings (20x1)

3,000,000 Billings (20x2)

600,000 12/31/x2

20x1 20x2 20x3

1,425,000 4,040,000 5,080,000
3,325,000 1,010,000
4,750,000 5,050,000 5,080,000
0.3 0.8 1