Question

Indiana Co. began a construction project in 2018 with a contract price of $162 million to be received when the project is completed in 2020. During 2018 Indiana Incurred $32 million of costs and estimates and additional $85 million of costs to complete the project. Indiana recognizes revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed. Supposed that in 2019, Indiana Incurred additional costs of $63 million and estimated an additional $52 million in costs to complete the project. Indiana recognized how much on the project in 2019?

Answer 1

Percentage Completion = Cost Incurred/ Estimated Total Cost : 2018 = 32/(32+85) = 27.35%

Estimated Profit = Contract Price - Estimated Total Cost : 162-117 =45

Recognize in 2018 = 45* 27.35% = 12.3075 .

2019

Percentage Completion = (32+ 63) / (32+63+52) = 64.6258 %

Estimated Profit = 162 -(32+63+52) = 15

Recognize in 2019 = 15* 64.6258% =9.6938

Since 12.3075 recognised in 2018, in 2019 2.6137 (12.3075 - 9.6938) a loss to be recognized.

(Note: 4 decimal points taken here, maybe slight variation will be there according with the decimals taken and rounded.)