ANSWER KEY:

THEORY

1. True 16. False

2. False 17. True
3. D 18. False
4. A 19. True
5. False 20. False
6. False 21. B
7. True 22. B
8. C 23. B
9. B 24. A
10. C 25. A
11. A 26. D
12. A 27. True
13. B 28. Cost Escalation
14. B 29. C
15. False 30. D
PROBLEMS:

1. Solution
2020 2021

Contract price 5,000,000 5,250,000

Less: Total estimated costs:

Costs incurred to date 2,530,000 4,350,000

Add: Estimated costs to

complete 2,500,000 940,000

Total estimated costs 5,030,000 5,290,000

Estimated gross profit (30,000) (40,000)

Multiplied by: percentage of completion 100% 100%

Recognized gross profit to date (30,000) (40,000)

Less: Recognized gross profit in prior year - 30,000

Recognized gross profit each year (30,000) (10,000)

 2. The percentage of completion is computed as follows:
2020 2021 (January)

Costs incurred to date (a) 1,260,000 1,260,000

Estimated costs to complete 1,890,000 ignored

Estimated total contract costs (b) 3,150,000 3,500,000(1)

Percentage of completion (a)/ (b) 40% 36%

This represents the revised estimate of total contract costs resulting from the contract modification on
(1)

January 2, 2021.

2020
2021
(January)

Total contract price 5,000,000 6,300,000(2)

 Multiply by: % of Completion 40% 36%

Revenue to date 2,000,000 2,268,000

Less: Revenue recognized in

previous years - 2,000,000

Revenue in 2020/ Cumulative

catch-up adjustment to revenue in
2021 2,000,000 268,000

Cost of construction (1,260,000) -

Gross profit for the year/

Cumulative catch-up adjustment to
gross profit in 2021 740,000 268,000

(2)The bonus is included in the transaction price only in 2021 when it became highly probable that the
entity will receive the bonus. The revised transaction price on January 2, 2021 is computed as
(5,800,000+500,000=6,300,000)

3. Percentage of completion
2020 2021 2022
 Total contract price 9,000,000 7,500,000 7,550,000a

Total contract costs (9,100,000) (8,000,000) (6,500,000)b

Profit(loss) to date (100,000) (500,000) 1,050,000

Profit in previous years - (100,000) (400,000)

Profit(loss) for the year (100,000) (400,000) 1,450,000

a The revised contract price in 2022 includes the claim for reimbursement which is probable of recovery.

bSince the contract was completed in 2022, total contract cost is the sum of all actual costs incurred
during the construction period (1,000,000+4,000,000+1,500,000).

4.
2020 2021
Costs incurred to date (a) 700,000.00 1,300,000.00
Estimated costs to complete 1,800,000.00 700,000.00
Estimated total contract costs 2,500,000.00 2,000,000.00
(b)
Percentage of completion- to 28% 65%
date (a/b)
Less: Percentage of - 28%
completion- last year
Percentage of completion- this 28% 37%
year

5.
2020 2021 2022
Contract Price 5,000,000.00 5,000,000.00 5,000,000.00
Costs Incurred to 1,800,000.00 2,800,000.00 3,500,000.00
(a)
Estimated costs to 1,800,000.00 400,00.00 -
complete
Total Estimated 3,600,000.00 3,200,000.00 3,500,000.00
Contract Price (b)
Estimated Gross 1,400,000 2,400,000 3,500,000
Profit
Multiply by: 50% 87.5% 100%
Percentage of
Completion (a/b)
Gross Profit- To 700,000.00 2,100,000.00 3,500,000.00
Date
Less: Gross Profit- - 700,000.00 2,100,000.00
Last Year
Less: Gross Profit- 700,000.00 1,400,000.00 1,400,000.00
This Year

6. Total Contract Price 6,000,000.00

Multiply by: Percentage of Completion 68.75%

Revenue-2020 4,125,000.00

7.
a. Solution
Contract Price P20,000,000
Less: GP recognized on contract 1,600,000
Total cost incurred on contract 18,400,000
Less: Cost incurred in 2012 and 11,800,000
2014
Cost incurred in 2013 6,600,000
 b. Solution

Cost incurred to date – 2013 P 10,200,000

Gross profit to date 1,800,0000

Total 12,000,000
Divided by the contract price 20,000,000
Percentage of completion – end 60%
of 2013

8. Materials P 2.5 million

Site labor costs 2.0 million
Agreed admin. Cost to be reimbursed 1.0 million
Depreciation of plant used in construction 0.5 million
Total cost incurred 6.0 million
Divided by the total contract price 18.0 million
Percentage of completion 33 1/3%
9.
% of completion = Total costs incurred to date
Total costs incurred to date +Est. cost
to complete
a. % of completion = 1,200,000/4,000,000
% of completion as at Dec. 31, 20x1 = 30%
b. % of completion = 2,500,000/3,000,000
% of completion as at Dec. 31,20x2 = 83.33%
c. The computed percentage of 80% as at Dec. 31,20x2 is the cumulative percentage of
completion at the end of the year. Thus, the percentage completed in 20x2 is 53.33% ( 83%
- 30% ).

10.
Cost incurred to date- 2021 P 650,000
Gross profit- 2021 150,000
Total 800,000
Divided by: Contract price 1,000,000
Percentage of completion- 2021 80%
 Percentage of completion = Total cost incurred for
the year
Total cost incurred for the
year +Estimated cost to
complete
80% = P 400,000
P 400,000 + x
P 400,000 = 80% (P 400,000 + x)
P 400,000 = P 320,000 + .80 x
P 400,000-320,000 = .80 x
P 80,000 = .80 x
.80 .80 x
Estimated cost to complete = P 100,000

11.
Cost incurred to date- 2018 P 500,000
Cost to complete- 2018 2,000,000
Estimated total contract cost P 2,500,000
 Cost incurred to date P 500,000
Divided by: Total estimated 2,500,000
contract cost
Percentage of completion- 2018 20%

Percentage of completion- 2020 85%

Less: Percentage of completion- 20%
2018
Percentage of completion- 2019 65%
Less: Percentage of completed- 20%
2018
Percentage completed- 2019 45%

12.

Cost incurred in 2016 P 3,000,000

Cost incurred in 2017 2,550,000
Estimated cost to complete- 2017 1,500,000
Estimated total contract cost- P 7,050,000
2017
13.
2015 2016 2017
Contract price P P P
3,000,000 3,000,000 3,000,000
Cost incurred to 850,000 1,500,000 2,200,000
date
Estimated cost to 1,000,000 800,000 0
complete
Total 1,850,000 2,300,000 2,200,000
Estimated gross 1,120,000 700,000 800,000
profit
Multiply by: 25% 70% 100%
percentage of
completion
Gross profit to date 280,000 490,000 800,000
Gross profit- prior - (280,000) (490,000)
year
Gross profit for the 280,000 210,000 310,000
year
Actual cost incurred 850,000 650,000 700,000
 Revenue P P P
1,130,000 860,000 1,010,000
14.

2020 2021 2022

Fixed fee ₱1,000,000 ₱1,000,000 ₱1,500,000
% of completion 20% 60% 90%
Profit to date ₱200,000 ₱600,000 ₱1,350,000
Profit in previous years - (200,000) (600,000)
Profit for the year ₱200,000 ₱400,000 ₱750,000
Cost incurred each year 1,000,000 2,000,000 1,500,000
Revenue for the year ₱1,200,000 ₱2,400,000 ₱2,250,000

15.
Contract Price:
2020: ₱5,500,000

2021: (₱5,500,000+555,000) ₱6,055,000

2020 2021
Cost incurred to date ₱1,567,000 ₱4,543,000
Estimated cost to complete 2,545,000 245,000
Est. total contract cost ₱4,112,000 ₱4,788,000
 Percentage of completion 38% 95%

2020 2021
Contract price ₱5,500,000 ₱6,055,000
% of completion 43% 95%
Revenue to date ₱2,365,000 ₱5,752,250
Revenue recognized in previous - (2,365,000)
year
Revenue for the year ₱2,365,000 ₱3,387,250

16.

CIP=Revenue

2020
Cost incurred to date ₱400
Est. cost remaining 1,600
Total contract price ₱2,000
% of completion 20%
 2020
Contract price ₱2,750
% of completion 20%
Revenue ₱550
17.
2019 2020
Revenue 0 6,000,000.00
Cost of construction 0 4,800.000.00
Gross profit 0 1,200,000.00
18.
Contract 1 Contract 2
Total Profit(loss)-2019 0 0

19.
2019 2020
Revenue 500,000.00 0
Cost of construction 375,000.00 0
Gross profit 125,000.00 0

20.
 20x1
Revenue 0
Cost of construction 0
Gross profit 0

21. Total contract price 1,000,000

Multiply by: Percentage of completion 75%
Revenue to date 750,000
Less: Revenue recognized in prior year -
Revenue for the year 750,000
Cost of the construction (600,000)
Gross profit for the year 150,000

22. 1st Year 2nd Year

Total contract price 1,500,000 1,500,000

Multiply by: Percentage of completion 75% 100%

Revenue to date 750,000 1,500,000

Less: Revenue recognized in prior year - 750,000

Revenue for the year 750,000 750,000

Cost of the construction (600,000) (650,000)

Gross profit for the year 150,000 100,000

23. Solution
A. Year 1 Year 2
No. of kilometers completed to date 10.0M 30.0M
Divide by: Total kilometers to be completed 50 50
Percentage of completion to date 20% 60%

Total contract price 15M 15M

Estimated total contract cost (9.8M) (13.2M)

Expected total profit from construction 0.2M 1.8M
Multiply by: % of completion 20% 60%
Profit to date 0.04M 1.08M
Profit recognized in prior years - (0.04)
Profit for the year 0.04M 1.76M
 B.
Year 1 Year 2
Total contract price 15M 15M
Multiply by: % of completion 20% 60%
Contract revenue to date 3M 9M
Contract revenue recognized in prior years - (3M)
Contract revenue to date 3M 6M

24. Solution
2000 2001
Total Contract Price 1,600,000 1,680,000
Less: Cost to date 550,000 800,000
Estimated cost to complete 825,000 150,000
Total 1,375,000 950,000
Estimated gross profit 225,000 730,000
Multiply: percentage of completion 40% 84%
Gross profit to date 90,000 613,200
 Less: Gross profit prior years 90,000
Gross profit this year 90,000 523,000

25. Solution
2019 2020 2021 2022
Costs incurred to date 2,500,000 5,240,000 8,000,000 9,550,000
Estimated costs to complete 7,500,000 4,860,000 2,200,000 750,000
Estimated total contract costs 10,000,000 10,100,000 10,200,000 10,300,000
Percentage of completion 25% 52% 78% 93%
 2019 2020 2021 2022
Estimated total contract costs 10,000,000 10,100,000 10,200,000 10,300,000
Multiply by Cost + Variable fee 120% 120% 120% 120%
Total 12,000,000 12,120,000 12,240,000 12,360,000
Incentive payment 300,000
Estimated total contract price 12,000,000 12,120,000 12,240,000 12,660,000
Multiply by: % of completion 25% 52% 78% 93%
Revenue to date 3,000,000 6,302,400 9,547,200 11,773,800
Revenue- Previous years (3,000,000) (6,302,400) (9,547,200)
Revenue for the year (1) 3,000,000 3,302,400 3,244,800 2,226,600
Costs incurred to date (2) (2,500,000) (2,740,000) (2,760,000) (1,550,000)
Profit for the year (3) 500,000 562,400 484,800 676,600

26. Solution

2019 2020 2021 2022

Costs incurred to date 2,500,000 5,240,000 8,000,000 9,550,000
Estimated costs to complete 7,500,000 4,860,000 2,200,000 750,000
Estimated total contract costs 10,000,000 10,100,000 10,200,000 10,300,000
Percentage of completion 25% 52% 78% 93%
 2019 2020 2021 2022
Estimated total contract costs 10,000,000 10,100,000 10,200,000 10,300,000
Fixed fee 1,500,000 1,500,000 1,500,000 1,500,000
Total 11,500,000 11,600,000 11,700,000 11,800,000
Incentive payment 300,000
Estimated total contract price 11,500,000 11,600,000 11,700,000 12,100,000
Multiply by: % of completion 25% 52% 78% 93%
Revenue to date 2,875,000 6,032,000 9,126,000 11,253,000
Revenue- Previous years (2,875,000) (6,032,000) (9,126,000)
Revenue for the year (1) 2,875,000 3,157,000 3,094,000 2,127,000
Costs incurred to date (2) (2,500,000) (2,740,000) (2,760,000) (1,550,000)
Profit for the year (3) 375,000 417,000 334,000 577,000
 27. Solution
A B
Costs incurre d to date 6,500,000 5,000,000
Estimate d costs to comple te 2,100,000 1,200,000
Estimate d total contract costs 8,600,000 6,200,000
Pe rce ntage of comple tion 76% 81%

Estimated total contract costs 8,600,000 6,200,000

Fixed fee 500,000 750,000
Estimated total contract price 9,100,000 6,950,000
Multiply by: % of completion 76% 81%
Revenue to date(CIP) 6,916,000 5,629,500
Revenue- Previous years
Revenue for the year 6,875,000 5,629,500
Less: Costs incurred to date 6,500,000 5,000,000
Profit for the year 375,000 629,500
28. Solution
2020 2021 2022
Costs incurred to date (squeeze ) 1,500,000 3,340,000 6,100,000
Estimated costs to complete 6,500,000 4,860,000 2,200,000
Estimated total contract costs 8,000,000 8,200,000 8,300,000
Percentage of completion 19% 41% 73%

2019 2020 2021

Estimated total contract costs 8,000,000 8,200,000 8,300,000
Multiply by Cost + Variable fee 115% 115% 115%
Total 9,200,000 9,430,000 9,545,000
Incentive payment
Estimated total contract price 9,200,000 9,430,000 9,545,000
Multiply by: % of completion 19% 41% 73%
Revenue to date 1,748,000 3,866,300 6,967,850
Revenue- Previous years (1,748,000) (3,866,300)
Revenue for the year (1) 1,748,000 2,118,300 3,101,550
Less: Costs incurred to date 1,500,000 1,840,000 2,760,000
Profit for the year (2) 248,000 278,300 341,550
29. Solution
2020 2021
Total Contract Price 15,000,000 17,250,000
Less: Cost to date 2,500,000 6,500,000
Estimated cost to complete 10,000,000 3,500,000
Total 12,500,000 10,000,000
Estimated gross profit 2,500,000 7,250,000
Multiply: percentage of completion 20% 65%
Gross profit to date 500,000 4,712,500
Less: Gross profit prior years 500,000
Gross profit this year 500,000 4,212,500
30. Solution
20x5 20x6
Total Contract Price 800,000 880,000
Less: Cost to date 350,000 500,000
Estimated cost to complete 400,000 150,000
Total 750,000 650,000
Estimated gross profit 50,000 230,000
Multiply: percentage of completion 47% 77%
Gross profit to date 23,500 177,100
Less: Gross profit prior years 23,500
Gross profit this year 23,500 153,600