Question

1)

A construction company entered into a fixed-price contract to build an office building for $20 million. Construction costs incurred during the first year were $6 million and estimated costs to complete at the end of the year were $9 million.

The building was completed during the second year. Construction costs incurred during the second year were $10 million.

How much revenue and gross profit or loss will the company recognize in the first and second year if it recognizes revenue upon contract completion?

2)

Franklin Construction entered into a fixed-price contract to build a freeway-connecting ramp for $30 million. Construction costs incurred in the first year were $16 million and estimated remaining costs to complete at the end of the year were $17 million.

How much gross profit or loss will Franklin recognize in the first year if it recognizes revenue over time according to percentage of completion method?

How much gross profit or loss will Franklin recognize in the first year applying the completed contract method?

Answer 1

1 As per Completed contraact method : Particulars First year Second year Explanation Gross Profit 0 $ 4 million 20 million - 6 million - 10 million 2 Accoding to percentage completion method Particulars First year Explanation Gross Loss $ 3 million 30 - 16 - 17 COSTS > REVENUE = GROSS LOSS Accoding to Contract completion method Particulars First year Explanation Gross Loss $ 3 million 30 - 16 - 17 Note : 1 If there is estimated gross loss in the project it shall be immediately recorded under both the methods.

Comment below if you have any query i will solve it asap !! thanks