LONG TERM CONSTRUCTION CONTRACTS (PRACTICAL ACCOUTING 2)

Problem A.Makati development company obtained a contract to construct a mid-rise building in Tagaytay City starting Jan 1, 2010. It was estimated at the beginning of the contract that it would cost MDC the amount of P3,600,000 for the 3-year construction. The agreed contract price was P4,500,000. The following information describes the status of the construction at the close of each year.201020112012

Actual Cost incurred2,025,0002,475,000270,000

Estimated cost to complete675,000288,0000

Billings in the contract1,980,0002,160,000360,000

Collection of the Billings each year1,800,0002,160,000540,000

I. Cost Recovery Method/ Zero Profit Method/ Hybrid Method:1. How much is the Realized Gross Profit/(loss) to be recognized in 2010?2. How much is the Realized Gross Profit/(loss) to be recognized in 2011?3. How much is the Revenue to be recognized in 2010?4. How much is the Revenue to be recognized in 2011?5. How much is CIP as of 2010?6. How much is CIP as of 2012?Problem B.Makati development company obtained a contract to construct a mid-rise building in Tagaytay City starting Jan 1, 2010. It was estimated at the beginning of the contract that it would cost MDC the amount of P3,600,000 for the 3-year construction. The agreed contract price was P4,500,000. The following information describes the status of the construction at the close of each year.201020112012

Actual Cost incurred2,025,0002,475,000270,000

Estimated cost to complete675,000288,0000

Billings in the contract1,980,0002,160,000360,000

Collection of the Billings each year1,800,0002,160,000540,000

I. Using Percentage of Completion Method:1. How much is the Realized Gross Profit/(loss) to be recognized in 2011?2. How much is the Realized Gross Profit/(loss) to be recognized in 2012?3. How much is the Revenue to be recognized in 2010?4. How much is the Revenue to be recognized in 2011?5. How much is CIP as of 2010?6. How much is CIP as of 2012?

Problem C:In 2011, James Builder Co. was contracted to build a railroad. The project was initially estimated to have a completion period of 4 years. If the project is completed within the budgeted construction period, an incentive payment of P200,000 shall be provided to JBC. Information on the project is shown below.201120122013

Cost incurred to date2,400,0004,575,0006,125,000

Estimated cost to compete3,600,0001,525,000125,000

As of December 31,2013, JBC assessed that project will be completed earlier tha expected and thus, JBC will be entitled to the incentive payment. I it probable that JBC will realize the incentive payment. All costs are ecpected to be recoverable.REQUIREMENTS:1. What is the total estimated contract price in 2011, 2012, and 2013 if the Final Contract Price will be billed at cost plus 20% (cost plus variable fee)2. What is the total estimated contract price in 2011, 2012, and 2013 if the Final contract price will be billed at cost plus fixed fee of P1.5 Million (cost plus fixed fee)