Question

On July 1, 2019, Grams Construction, Inc. agreed to construct a factory for a customer. The contract called for payments to Grams totaling $2 million.

Grams has correctly determined that it is appropriate to recognize revenue over time, and it uses its costs as a measure of completion. The same cost information is used to determine the portion of the contract price Grams is entitled to receive.

The following information describes the costs incurred and expected remaining costs at December 31, 2019 and 2020.

	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2021
Total cost incurred	$40,000	$115,000	$128,000
Estimated remaining costs	85,000	15,000
Estimated total costs	$125,000	$130,000	$128,000

The factory is completed on January 31, 2021.

Required:

Determine the amount of revenue Grams reports related to the above factory in 2019, 2020, and 2021.

Answer 1

Solution:

Particulars	31. Dec. 2019	31. Dec. 2020	31. Dec. 2021
Contract Revenue (WN -1) Less: Cost of contract Profit to be recognized	$640,000 $40,000	$1,769,200 $115,000	$2,000,000 $128,000
	$600,000	$1,654,000	$1,872,000

Workings:

1. % of Completion = Costs incurred to date / Total costs ×100

= $40,000 / $125,000 ×100 = 32%

= $115,000 / $130,000 ×100 = 88.46%

= $128,000 /$128,000 ×100 = 100%

2. Contract Revenue     = Contract Price × % of Completion

= $2,000,000 * 32% = $640,000

= $2,000,000* 88.46% = $1,769,200

= $2,000,000* 100% = $2,000,000