Question

Entity A is a construction company, recognising progress based on work certified over total contract value. Entity A will satisfy the performance obligation over time. The following information relates to one of its long-term contracts as at 31 May 2019, Entity A’s year-end.

• Contract price   $200,000
• Costs incurred to date $130,000
• Estimated cost to complete       $20,000
• Invoiced to customer                $120,000
• Work certified to date               $180,000

In the year to 31 May 2018, Entity A had recognised revenue of $60,000 and a profit of $15,000 in respect of this contract.

REQUIRED:

What profit should appear in Entity A’s Statement of Profit or Loss as for the period ended 31 May 2019 in respect of this contract?

ANSWER:

Contract profit = Blank 1

Answer 1

% of work certified over contract value = Work certified till date / contract value

                   = 180000 /200000

                  = .90 or 90%

Total contract value		200000
less:Cost incurred till date	130000
Estimated cost to complete	20000	(150000)
Total Gross profit		50000

Gross profit to be recognized till date (50000*90%)	45000
Less:Gross profit recognized in prior year	(15000)
Gross profit to be recognized in 2019	30000

Entity A’s Statement of Profit or Loss as for the period ended 31 May 2019 in respect of this contract : 30000