Homework Answers
Solution
Given that Contract Price is $35,000,000. Now for the purpose of solution, following calculations have been made,
Calculation of year-wise Revenue and Gross Profit:
| 2021 | 2022 | |
| Costs Incurred to date | $ 45,00,000.00 | $ 130,00,000.00 |
| Estimated costs to complete | $ 180,00,000.00 | $ 120,00,000.00 |
| Total Costs | $ 225,00,000.00 | $ 250,00,000.00 |
| Percentage of Completion | ||
| (Current Costs / Total Costs) | 20% | 52% |
| Total Revenue to be recognized | ||
| (Percentage x Contract Price) | $ 70,00,000.00 | $ 182,00,000.00 |
| Less: Revenue for prior year | $ - | $ -70,00,000.00 |
| Revenue for Current Year | $ 70,00,000.00 | $ 112,00,000.00 |
| Less: Current Year Costs | $ -45,00,000.00 | $ -85,00,000.00 |
| Gross Profit to be recognized | $ 25,00,000.00 | $ 27,00,000.00 |
Note: Cost for 2022 = $13,000,000 - $4,500,000 = $8,500,000
Therefore,
(a) In the year 2021, gross profit to be reported amounting to $2,500,000.
(b) In the year 2022, gross profit to be reported amounting to $2,700,000.
(c) Journal entries shall be passed as follows,
| Year | Particulars | Amount (Dr.) | Amount (Cr.) |
| 2021 | Construction in Progress A/c………Dr. | $ 25,00,000.00 | |
| Cost of Construction A/c……..Dr. | $ 45,00,000.00 | ||
| To, Revenue from Long-term Contracts A/c | $ 70,00,000.00 | ||
| (Being Revenue and gross profit for the year 2021 recognized) | |||
| 2022 | Construction in Progress A/c………Dr. | $ 27,00,000.00 | |
| Cost of Construction A/c……..Dr. | $ 85,00,000.00 | ||
| To, Revenue from Long-term Contracts A/c | $ 112,00,000.00 | ||
| (Being Revenue and gross profit for the year 2022 recognized) |
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