Question

PRACTICAL QUESTION                                                                                         

Tiger Construction Ltd signs a contract on 1 May 2018 to build a theme park. The construction is scheduled to commence on 1 July 2018 and the estimated date of completion is 30 June 2021. The total contract price is $5m and the cost of the park is initially estimated at $4.5m. The following data relates to the construction period:

	For the year ended 30 June
	2019	2020	2021
	$	$	$
Costs to date	1,700,000	3,000,000	4,800,000
Estimated costs to complete	2,800,000	1,700,000	-
Progress billings to date	1,400,000	2,600,000	5,000,000
Cash received to date	1,200,000	2,200,000	5,000,000

Assume that cost (an input measure) is used as the basis for assessing progress on the construction contract.

Required

Determine the percentage of completion for 2019, 2020 and 2021.               

	2019	2020	2021
	$	$	$
Costs to date (A)
Estimated costs to complete (B)
Estimated total cost (A+B=C)
Percent of completion (POC=A/C)

Calculate revenue and gross profit for 2019, 2020 and 2021.                           

			2019		2020		2021
			$		$		$
Contract Price
Contact Price x POC
LessRevenue recognised in previous years
= Revenue recognised for the year
Less Costs for the year
= Gross profit for the year

Using the percentage of completion method, provide the journal entries for 2019, 2020 and 2021.                                                                                                              

			2019 $m	2020 $m	2021 $m
(i)	To record costs incurred:
(ii)	To record billings to customers:
(iii)	To record cash collections:
(iv)	To record periodic income recognised:

Answer 1

	2019	2020	2021
Cost to date (A)	1700000	3000000	4800000
Estimate cost to complete (B)	2800000	1700000
Estimated total cost (A+B=C)	4500000	4700000	4800000
POC (A/C)	37.777777777%	63.829787%	100%

	2019	2020	2021
Contract Price	5000000	5000000	5000000
Contract price * poc	1888889	3191489	5000000
Less:- Revenue recognised in previous years	0	1888889	3191489
Revenue recognised for the year	1888889	1302600	1808511
Less cost of the year	1700000	1300000	1800000
Gross profit of the year	188889	2600	8511

		2019		2020		2021
		Debit	Credit	Debit	Credit	Debit	Credit
(i)	To record cost incurred:-
	Construction in Process	1700000		1300000		1800000
	Account Payable		1700000		1300000		1800000
(ii)	To record billings to customer:-
	Account Receivable	1400000		1200000		2400000
	Billings		1400000		1200000		2400000
(iii)	To record cash collection:-
	Cash	1200000		1000000		2800000
	Account Receivable		1200000		1000000		2800000
(iv)	To record periodic income recognized:-
	Construction in Process	188889		2600		8511
	Construction Exp	1700000		1300000		1800000
	Construction Revenue		1888889		1302600		1808511