Question

Queens Construction Company commences construction of a harbour on 1 July 2020. It signs a fixed-price contract for total revenue of $400 million. The project is expected to be completed by the end of June 2023. The expected cost at the commencement of construction was $300 million. The expected costs to complete a construction project can change throughout the project. The following data relates to the project:

	2021	2022	2023
	($ M)	($ M)	($ M)
Costs for the year	90	110	120
Costs incurred to date	90	200	320
Estimated costs to complete	210	120	-
Progress billings during the year	100	120	180
Cash collected during the year	90	130	180

The contract is completed as expected on 30 June 2023. Queens Construction Company uses the percentage-of-completion method to account for its construction contract.

REQUIRED

Provide the numbers for the journal entries below. Assume the stage of completion can be reliably determined. Round the percentage complete (%) to one decimal place (i.e, 0.0%) if necessary.  Complete the six blanks below. (You don't need to provide the numbers for "?")

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Journal entry to record periodic income recognised:

	2021	2022	2023
	($M)	($M)	($M)
Dr. Construction in process
Dr. Construction expenses	?	?	?
Cr. Revenue from long-term contract

Answer 1

For the year ended 2021
Particulars	Debit	Credit
Construction in progress	90
To cash		90
(being expenditure incurred for construction)
Accounts receivable	100
To billing on construction contract		100
(Being bills raised)
Cash	90
To Accounts receivable		90
(being cash collected during the year)
Construction Expense	90
Construction in progress	30
To construction revenue		120
(being construction revenue recognised)
For the year ending 2022
Construction in progress	110
To cash		110
(being expenditure incurred for construction)
Accounts receivable	120
To billing on construction contract		120
(Being bills raised)
Cash	130
To Accounts receivable		130
(being cash collected during the year)
Construction Expense	110
Construction in progress	36.7
To construction revenue		146.67
(being construction revenue recognised)
For the year ending 2023
Construction in progress	120
To cash		120
(being expenditure incurred for construction)
Accounts receivable	180
To billing on construction contract		180
(Being bills raised)
Cash	180
To Accounts receivable		180
(being cash collected during the year)
Construction Expense	120
Construction in progress	13.3
To construction revenue		133.3
(being construction revenue recognised)
billing on construction contract	400
To construction in progress		400
(being entries on project completion)

% completion calculation
	2021	2022	2023
Cost incurred till date	90	200	320
Estimated total cost	300	300	300
% completion	30.0%	66.7%	100%
% completion	=cost incurred till date/estimated total cost

Revenue recognised
Cost incurred till date	90	200	320
Estimated total cost	300	300	300
Contract Price	400	400	400
Revenue previously recognised	0	120	146.7
	120	146.6667
Revenue recognised	=(cost incurred till date/estimated total cost)*Contract price-Revenue previously recognised