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Antioch Co
Antioch Co. started work on an P8M fixed-price construction contract in 2021. Information on the contract is as follows: 2021 2022 2023 Costs incurred per year 2,850,000 3,670,000 1,600,000 Estimated costs to complete 4,275,000 1,630,000 9. Compute for the loss in 2022 (no need to put negative sign to your final answer). 10. Compute for the loss in 2023 (no need to put negative sign to your final answer).
Use the following information for the next two questions: Light Co. was contracted to build a house for a customer. The contract price was P15,000,000. Light uses the percentage of completion method, based on costs, in recognizing revenue from the contract. The estimated total contract costs were P12,800,000. Light incurred the following costs: 2021 2022 Costs incurred per year 1,536,000 9,992,000 In 2022, the customer changed the design of the staircase and agreed to a 15% increase in the original contract price. Light Co. estimated that additional P300,000 costs will be incurred. The performance obligation in the contract remains a single performance obligation. 29. How much is the revenue recognized in 2022? 30. How much is the gross profit recognized in 2022?
Expert Solution
1 Anitoch Co.
Computation of Loss for construction contract
|
Particulars / Year |
2022 (P) |
2023 (P) |
|
Contract Price (a) |
P8,000,000 |
P8,000,000 |
|
Cost Incurred to date |
6,520,000 |
8,120,000 |
|
Estimated Cost to complete |
1,630,000 |
|
|
Total Cost (b) |
8,150,000 |
8,120.000 |
|
Gross Profit / (Loss) (a-b) |
(150,000) |
(120,000) |
Cost incurred to date = For year 2022 = cost of current year + cost of previous year (2021)
= P3,670,000 + P2,850,000 = P6,520,000
Cost incurred to date for 2023 = cost of current year + cost of previous year (2021+2022)
= P1,600,000 + P6,520,000 = P8,120,000
2. Light Co.
Revenue for the year 2021 as per percentage of completion method
Percentage completed = Cost incurred to date / Total estimated cost of construction
= P1,536,000 / P12,800,000 = 12%
Hence, 12% of construction completed.
Revenue would be = Total contract price X percentage completed
= P15,000,000 X 12% = P1,800,000
For year 2022
Since, the customer changed the design of the staircase and agreed to a 15% increase in the original contract price, revised Contract price would be = P17,250,000 (P15,000,000 + 15% of 15,000,000)
Cost incurred to date = cost of current year + cost of previous year 2021
= P9,992,000 + P 1,536,000 = P11,528,000
Estimated cost due to change in design = P300,000
Total Estimated cost = P12,800,000 + P300,000 = P13,100,000
Percentage completed = Cost incurred to date / Total estimated cost of construction
= P11,528,000 / P13,100,000 = 88%
Hence, 88% percentage completed.
As, information is not provided that when contract gets completed. Revenue would be
= (Total contract price X percentage completed) – revenue of previous year
= (P17,250,000 X 88%) - P1,800,000
= P15,180,000 - P1,800,000 = P13,380,000
As it is single performance obligation, total revenue would be recognized when customer obtain control of that asset.
Gross profit for 2022 = Revenue for 2022 – Cost of 2022
= P1,338,000 - P9,992,000 = P3,388,000
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