CONSTRUCTION CONTRACTS
PAS 11
AFAR MICHAEL B.BONGALONTA,CPA,MICB,MBA
Baldwin Company
The following data pertains to Baldwin Company’s construction jobs, which commenced during 2010.
Project 1 Project 2
Contract price P420,000 P300,000
Costs incurred during 2010 240,000 280,000
Estimated costs to complete 120,000 40,000
Billed to customers during 2010 150,000 270,000
Received from customers during 2010 90,000 250,000
1. Refer to Baldwin Company. What amount of gross profit (loss) would Baldwin report in
2010 under the zero profit method?
2. Refer to Baldwin Company. What amount of gross profit (loss) would Baldwin report in
2010 under the percentage of completion method?
3. Cade Company has consistently used the percentage of completion method of
accounting for construction type contracts. During 2008 Cade started work on a P9,000,000 fixed
price construction contract that was completed in 2010. Cade’s accounting records disclosed the
following:
December 31
2008 2009
Cumulative contract costs incurred P3,900,000 P6,300,000
Estimated total cost at completion 7,800,000 8,100,000
How much income would Cade have recognized on this contract for the year ended December 31,
2009?
4. Saar Company recognizes construction revenue and expenses using the percentage of
completion method. During 2009 a single long-term project was begun, which continued through
2010. Information on the project follows:
2009 2010
Accounts receivable from construction contract P100,000 P300,000
Construction expenses 105,000 192,000
Construction in progress 122,000 364,000
Partial billings on contract 100,000 420,000
Profit recognized fro the long-term construction contract in 2010 should be:
5. Lachlan Company has consistently used the percentage of completion method of
recognizing income. During 2009 Lachlan entered into a fixed price contract to construct an office
building for P10,000,000. Information relating to the contract is as follows:
At December 31
2009 2010
Percentage of completion 20% 60%
Estimated total cost at completion P7,500,000 P8,000,000
Income recognized (cumulative) 500,000 1,200,000
Contract costs incurred during 2010 were:
6. Haben Company has consistently used the percentage of completion method of
recognizing income. During 2010 Haben started work on a P3,000,000 fixed price construction
contract. The accounting records disclosed the following data for the year ended December 31, 2010:
Costs incurred P930,000
Estimated cost to complete 2,170,000
Progress billings 1,100,000
Collections 700,000
How much loss should Haben have recognized in 2010?
7. Mac Company has consistently used the percentage of completion method. On January
10, 2009, Mac began work on a P6,000,000 construction contract. At the inception date, the estimated
cost of construction was P4,500,000. The following data relate to the progress of the contract:
Income recognized at 12/31/09 P600,000
Cost incurred 1/10/09 through 12/31/10 3,600,000
Estimated cost to complete at 12/31/10 1,200,000
How much income should Mac recognize for the year ended December 31, 2010?
Saber Company
The following data relate to a construction job started by Saber Company during 2010:
Total contract price P100,000
Actual costs during 2010 20,000
Estimated remaining costs 40,000
Billed to customer during 2010 30,000
Received from customer during 2010 10,000
8. Refer to Saber Company. How much gross profit would Saber recognize for 2010
under the zero profit method?
9. Refer to Saber Company. How much gross profit would Saber recognize for 2010
under the percentage of completion method?
10. On April 1, 2010, Balin Company entered into a cost-plus-fixed-fee contract to
construct an electronic generator for Dalton Company. At the contract date, Balin estimated that it
would take two years to complete the project at a cost of P2,000,000. The fixed fee stipulated in the
contract is P300,000. Balin appropriately accounts for this contract under the percentage of
completion method. During 2010, Balin incurred costs of P700,000 related to the project, and the
estimated cost of December 31, 2010 to complete the contract is P1,400,000. Dalton was billed
P500,000 under the contract. The gross profit to be recognized by Balin under the contract on
December 31, 2010 is:
Ladarius Company
In 2010, Ladarius Company began construction work under a three-year contract. The contract price is
P800,000. Ladarius uses the percentage of completion method for financial accounting purposes. The
income to be recognized each year is based on the proportion of cost incurred to total estimated costs
for completing the contract. The financial statement presentations relating to this contract at
December 31, 2010 follows:
Balance Sheet
Accounts receivable - construction contract billings P15,000
Construction in progress P50,000
Less: contract billings 47,000
Cost of uncompleted contract in excess of billings 3,000
Income Statement
Income (before tax) on the contract recognized in 2010 P10,000
11. Refer to Ladarius Company. The cash collected in 2010 are:
12. Refer to Ladarius Company. The initial estimated gross profit on the contract is:
13. Cadence Company entered into a firm fixed price contract with Rod Company on July
1, 2008 to construct a four-storey office building. At that time, Cadence estimated that it would take
between two and three years to complete the project. The total contract price for the construction of
the building is P4,000,000. Cadence appropriately accounts for this contract under the zero profit
method in its financial statements for income tax reporting. The building was deemed substantially
completed on December 31, 2010. Estimated percentage of completion, accumulated contract costs
incurred, estimated costs to complete the contract, and accumulated billings to Rod under the contract
were as follows:
At December At December At December
31, 2008 31, 2009 31, 2010
Percentage of completion 10% 60% 100%
Contract costs incurred P350,000 P2,500,000 P4,250,000
Estimated costs to complete the contract P3,150,000 P1,700,000 --
Billings to Rod P720,000 P2,160,000 P3,600,000
The amount to be shown as excess of cost over billings or (billings in excess of cost) in December 31,
2010 is:
14. Banagher Company uses the percentage of completion method in recognizing income.
In 2008, Banagher Company was engaged by SM on a fixed price contract to build a 4 storey shopping
mall. On January 1, 2010, a fire damaged the accounting records of Banagher. The president of the
company has contracted you to reconstruct the contract information. The following data were taken
from the salvaged files:
December 31
2008 2009
Architect’s estimated cost of completion P7,500,000 P8,000,000
Costs incurred 3,000,000
Percentage of completion 60%
Income recognized to date 500,000 1,200,000
Compute for the percentage completed in 2008 on SM shopping mall.
15. Macall Company was awarded a contract to construct a new sewerage system for
MWSS for a price of P3,250,000. The original estimate of the cost to complete the project was
P3,000,000. The contract provides for periodic progress billings. A final billing equal to 25% of the
contract price is to be made upon final inspection and acceptance by the MWSS. The construction
record for the system was as follows:
Date Cost incurred to date Estimated cost to complete
Dec. 31, 2008 P1,075,000 P1,612,500
Dec. 31, 2009 2,625,000 750,000
Aug. 15, 2010 3,425,000 --
The construction was inspected on August 15, 2008, January 15, 2009, and Oct. 1, 2010, and
progress billings equal to 25% of the contract price were made on each of these dates. The system
was completed, and final inspection and acceptance tool place on August 21, 2010. How much is the
construction in progress, net of billings in the 2009 balance sheet?
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