1 | Percentage of completion=Cost incurred during the year/Total estimated cost | ||||||
Revenue to be recognized=(Contract price*Percentage of completion)-Revenue already recognized | |||||||
Gross profit/(loss) to be recognized=(Estimated gross profit/(Loss) *percentage of completion)-Gross profit already recognized | |||||||
Estimated gross profit/(loss)=Contract price-Total estimated costs | |||||||
2021 | 2022 | 2023 | |||||
a) Contract price | 8240000 | 8240000 | 8240000 | ||||
b) Actual cost to date | 2080000 | 4660000 | 8540000 | ||||
(2080000+2580000) | (4660000+3880000) | ||||||
c) Estimated costs to complete | 4080000 | 3720000 | 0 | ||||
d) Total estimated costs (b)+© | 6160000 | 8380000 | 8540000 | ||||
e) Estimated gross profit/(loss) (a)-(d) | 2080000 | -140000 | -300000 | ||||
f) Percentage of completion (b)/(d) | 33.77% | 55.61% | 100.00% | ||||
g) Revenue to be recognized | 2782338 | 1737662 | 3720000 | ||||
(8240000*33.77%)-0 | Note:1 | (Note:2) | |||||
h) Gross profit/(loss) to be recognized | 702338 | -842338 | -160000 | ||||
(2080000*33.77%)-0 | (Note:1) | (Note:2) | |||||
Note:1 | |||||||
If estmated gross loss appears,then entire loss has to be recognized in that year itself irrespective of percentage of completion method | |||||||
Hence,loss to be recognized=140000+702338=$ 842338 | |||||||
Revenue to be recognized=Expense to be recognized-loss to be recogized=2580000-842338=1737662 | |||||||
Note:2 | |||||||
Hence,loss to be recognized=-300000+140000=$ -160000 | |||||||
Revenue to be recognized=Expense to be recognized-loss to be recogized=3880000-160000=3720000 | |||||||
Percentages of completion | |||||||
Year | Actual cost to date | / | Estimated total costs | = | % complete to date | ||
2021 | 2080000 | / | 6160000 | = | 33.7662% | ||
2022 | 4660000 | / | 8380000 | = | 55.6086% | ||
2023 | 8540000 | / | 8540000 | = | 100.0000% | ||
2021 | |||||||
To date | Recognized in prior years | Recognized in 2021 | |||||
a | b | a-b | |||||
Construction revenue | 2782338 | 0 | 2782338 | ||||
Construction expense | 2080000 | 0 | 2080000 | ||||
Gross profit (loss) | 702338 | 0 | 702338 | ||||
2022 | |||||||
To date | Recognized in prior years | Recognized in 2022 | |||||
a | b | a-b | |||||
Construction revenue | 1737662 | ||||||
(Note:1) | |||||||
Construction expense | 4660000 | 2080000 | 2580000 | ||||
Gross profit (loss) | -140000 | 702338 | -842338 | ||||
2023 | |||||||
To date | Recognized in prior years | Recognized in 2023 | |||||
a | b | a-b | |||||
Construction revenue | 3720000 | ||||||
(Note:2) | |||||||
Construction expense | 8540000 | 4660000 | 3880000 | ||||
Gross profit (loss) | -300000 | -140000 | -160000 | ||||
Journal entries: | |||||||
2-a. | Date | Account Titles and Explanation | Debit | Credit | |||
2018 | Construction in progress | 2080000 | |||||
Various accounts | 2080000 | ||||||
(Construction cost incurred) | |||||||
Accounts receivable | 2580000 | ||||||
Billings on construction contract | 2580000 | ||||||
(Billings during the year) | |||||||
Cash | 2330000 | ||||||
Accounts receivable | 2330000 | ||||||
(Cash collections during the year) | |||||||
Construction in progress | 702338 | ||||||
Cost of construction | 2080000 | ||||||
Revenue from long-term contracts | 2782338 | ||||||
(Gross profit and revenue recognized) |
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