Solutions Problem III – VIII (AFAR-04) antonio jaramillo dayag

Problem III – continuation

Percentage-of-Completion (Overtime)
2019 2020 2021
Revenue 175,000 202,400 132,600
Costs 140,000 156,000 96,500
GP 35,000 46,400 36,100

CIP-% of C (OT) Progress/Contract Billings

2019 CI 140,000 B/S: Current/Contract Liability (CL) 187,500
P 35,000 PB……………………… 187,500
Less: CIP……………175,000
*CL.……………………… 12,500
175,000 187,500
2020 CI 156,000 Current/Contract Asset (CA) 140,000
P 46,400 CIP………………………377,400
Less: PB/CB……….327,500
**CA……………………… 49,900
377,400 327,500
2021 CI 96,500 182,500
P 36,100

510,000 510,000*** *** 510,000 510,000

Entry 5: Closing Entry

* or Billings in Excess of Cost and Profit (US GAAP term)

** or Cost and Profit in Excess of Billings (US GAAP term)
*** should be equal upon year of completion.

Cost Recovery Method/Zero-Profit Approach (Point in Time)

2019 2020 2021
Revenue 140,000 156,000 214,000
Costs 140,000 156,000 96,500
GP ____-0- ____-0- 117,500

CIP-% of C (OT) Progress/Contract Billings

2019 CI 140,000 B/S: Current/Contract Liability (CL) 187,500
P 0 PB……………………… 187,500
Less: CIP……………140,000
*CL.……………………… 47,500
140,000 187,500
2020 CI 156,000 Current/Contract Liability (CL) 140,000
P 0 PB………………………327,500
Less: CIP………….296,000
*CL…………………… 31,500
296,000 327,500
2021 CI 96,500 182,500
P 117,500

510,000 510,000** * * 510,000 510,000

Entry 5: Closing Entry

* or Billings in Excess of Cost (US GAAP term)

** should be equal upon year of completion.

Note: Cost Recovery Method (IASB) versus Completed-Contract Method (US)

Cost Recovery Method (PT) Completed-Contract Method
2019 2020 2021 2019 2020 2021
Revenue 140,000 156,000 214,000 -0- -0- 510,000
Costs 140,000 156,000 96,500 ____-0- ____-0- 392,500
GP ____-0- ____-0- 117,500 ____-0- ____-0- 117,500
 page 2
Problem IV – PJD Construction
1. (c) – t-account approach
A/R Progress/Contract Billings
123,000 123,000
80,000 collections
43,000 123,000
2. (d)
(Use fill-in the blank /work-back approach) 2019
Contract Price 2,000,000
Less: Total Estimated Cost
Cost Incurred Each Year (refer to T-acct. computation below) 93,600
+: Cost Incurred in Prior Years ______-0-
Cost Incurred to Date 93,600
+: Estimated Cost to Complete ________
Total Estimated Cost ________
Estimated Gross Profit 560,000
x: % of C (CI to date/TEC) (36,400 + 93,600)/2,000,000 = 6.5% ___6.5%
Gross Profit to Date 36,400
Less: GP in Prior Yr(s) _____-0-
GP (L) Each Year - % of C (OT) __36,400
Or, (Use fill-in the blank /work-back approach)
CIP
CI (?) 93,600
Profit 36,400
130,000
Divide (/)
2019
to date PY(s) CY
R (2,000,000 x 6.5%) 130,000 -0- 130,000
C( ? x 6.5%) 93,600 -0- 93,600
G (560,000 x 6.5%) 36,400 -0- 36,400

= 28% 28%
[Note: if GP rate on the [Note: if GP rate
Entire Contract-cumulative) IN 2019 or CY)
Or, (use this approach if the Question is INITIAL year; for subsequent years – DO NOT use
this approach)
Contract Price/Selling Price 2,000,000
x: Cumulative GP rate 28%
Initial Estimated GP 560,000
3. (a) – (P36,400 + P93,600)/P2,000,000 refer to No. 2 for further solution
4. (c) – (P130,000/P2,000,000) refer to No. 2 for further solution
5. (c) – refer to No. 2 (Note: to date)
6. (c) – refer to No. 2 (Note: IN 2019)
Problem V – DJ Builders
1. (a) –P660,000
2. (c) - 60%
3. (b) – (60% - 20% = 40% during 2020 or each year-2020)
4. (d) – P180,000 / 60% = P300,000
5. (b) – P1,700,000 – P1,020,000
2019 2020 2021
Contract Price 2,000,000 2,000,000 2,000,000
CIEY 360,000 660,000 820,000
+: CIPYs ____-0- 360,000 1,020,000
CI to date 360,000 1,020,000 1,840,000
+: EC to C __680,000 _____-0-
TEC 1,700,000 1,840,000
Est’d GP 200,000 300,000 160,000
x: % of C (CI to date/TEC) ___*20% ____60% 100%
GP (L) to Date 40,000 180,000 160,000
Less: GP in PY(s) ____-0- __40,000 _180,000
GP (L) EY-% of C (OT) 40,000 140,000 *(20,000)
 page 3
Color Red – given data
Procedures/Steps – depends on the data given.
2019-
Step 1: 40,000 + 0 = 40,000
2: 360,000 + 0 = 360,000
3: (40,000 + 360,000)/2,000,000 = *20%
4: 40,000 / 20% = 200,000
2020:
Step 5: 40,000 GP-2019 to date to 2020
6: 140,000 GP EY + 40,000 GP in PY
7: 360,000 CI to date to 2020
8: 140,000 GP EY + 40,000 GP in PY-2019
Cannot proceed to determine other amounts because of many missing figures
2021:
Step 9: 180,000 GP-2020 to date to 2021
10: (20,000) GL EY + 180,000 GP in PY-2020 = P160,000
11: Since, 2021 is Year of Completion, therefore, it is fully-completed (100%)
12: P160,00 / 100% = P160,000
13: P2,000,000 – P160,000 = P1,840,000
14: P1,840,000 + P0 (EC to C) = P1,840,000, CI to date
15: CI to date, P1,840,000 – P820,000 = P1,020,000
2020:
Step 16: CIPY (2021) transfer to CI to date, 2020
17: P1,020,000 – P360,000 = P660,000
18: (P180,000 + P1,020,000)/P2,000,000 = 60%
19: P180,000 / 60% = P300,000
20: CP, P2,000,000 less GP, P300,000 = TEC, P1,700,000
21: TEC, P1,700,000 less P1,020,000 (refer to Step 15) = P680,000
*Note: 2021, (P20,000), theoretical loss – over-distribution of profit

Bottom-line Analysis:
2019 2020 2021 Total
GP (L) to Date 40,000 180,000 160,000
Less: GP in PY(s) ____-0- __40,000 _180,000
GP (L) EY-% of C (OT) 40,000 140,000 ( 20,000) =160,000

GP (L) EY-Cost Rec (PT) 0 0 160,000 =160,000

Anticipated/Estimated (L) Loss IF

2019 2020 2021 2021
Contract Price
CIEY 360,000 660,000 820,000
+: CIPYs
CI to date
+: EC to C
TEC
Est’d GP (Loss) 200,000 *(200,000) (350,000) 300,000
x: % of C ___*20% full_90% ___100% ___90%
GP (L) to Date 40,000 (200,000) (350,000) 270,000
Less: GP in PY(s) ____-0- __40,000 (200,000) (200,000)
GP(L)EY-% of C – OT 40,000 (240,000) (150,000) =(350) 470,000

GP(L)EY-Cost Rec-PT **0 (200,000) (150,000) =(350) **0

** Not yet completed, therefore, Zero Profit.
T-Account Analysis
CIP-% of C (OT) CIP – Cost Recovery (PT)
2019 CI 360,000 CI 360,000
P 40,000 _______ P **-0-
400,000 360,000
2020 CI 660,000 CI 660,000
240,000 Loss 200,000 loss
820,000 820,000
2021 CI 820,000 CI 820,000
150,000 Loss 150,000 loss
1,490,000 1,490,000

Note: In case of Anticipated/Estimated loss, in the year of incurrence, the CIP account
for both methods are exactly the same.
 page 4
Problem VI: Answer – (A)
* 9,600,000 + 400,000 = 10,080,000
20x4 20x5
Contract Price 9,600,000 *10,080,000
CIEY 4,920,000 3,720,000
+: CIPY(s) _______0- 4,920,000
CI to Date 4,920,000 8,640,000
+: EC to C 4,920,000 2,160,000
TEC 9,840,000 10,800,000
Est’d GP (L) ( 240,000) ( 720,000)
x:%ofC (CI to D/TEC) ____50% _____80%
GP (L) to date ( 240,000) ( 720,000)
Less: GP in PY(s) _____-0- ( 240,000)
GP Each Year -% of C ( 240,000) ( 480,000)
GP(L)EY-Cost Rec ( 240,000) ( 480,000)
Note: In case of Anticipated/Estimated Loss (Not Theoretical Loss) the CIP account for both
methods have the same amount in the year of incurrence.
CIP Progress/Contract Billings
X4 CI 4,920,000 5,280,000
240,000 loss CL
4,680,000 600,000 5,280,000
X5 CI 3,720,000 480,000 loss
CL
7,920,000 780,000 8,700,000
Where CL – Contract Liability/Current Liability (both of these terms are the same in case of
Construction Accounting, but not in other businesses).

Problem VII Requirement 1 Requirement 2

- % of Completion - % of Completion
Input - Cost to Cost Output-Proportional
2019 2019
Contract Price 16,800,000 16,800,000
Cost Incurred Each Year 10,400,000 10,400,000
+: Cost Incurred in PY(s) _______-0- _______-0-
Cost (actual) Inc. to Date 10,400,000 10,400,000
+: Estd Cost to Complete _3,600,000 _3,600,000
Total Estimated Cost 14,000,000 14,000,000
Estimated Gross Profit 2,800,000 2,800,000
x: % of C (CI to date/TEC) ___10.4/14 ¾
GP (L) to Date 2,080,000 2,100,000
Less: GP(L) in PY(s) Yr(s) ______-0- ______-0-
GP(L) Each Year 2.080,000 (1) 2,100,000
% of Completion Method (OT) - Proportional (means Rev, Cost and GP was multiplied
PROPORTIONATELY by ¾ Cost - Problem is CI is not the same) Cost Approach
Rec. To Date Rec. in PYs Rec. CY
2019 Revenue (CP x % of C)
16,800,000 x ¾ 12,600,000 -0- 12,600,000
Cost (TEC x % of C)
14,000,000 x ¾ 10,500,000 -0- 10,500,000
GP/L (Est’d. GP x % of C)
2,800,000 x ¾ 2,100,000 -0- 2,100,000

Requirement (2) – Output Method (Proportional Cost Approach)

CIP Progress/Contract Billings

CI 10,400,000 10,080,000 = (16,800,000/5 = 3,360,000 x 3Qtrs)
P 2,100,000
12,500,000 CA – 2,420,000 10,080,000
 page 5

Requirement (3) – Output Method (Actual Cost Approach) – Applied to Revenue

% of Completion Method (OT) – Actual Cost Approach (Revenue)

2019 Rec. To Date Rec. in PYs Rec. CY
Revenue (16,800,000 x ¾) 12,600,000 -0- 12,600,000
Cost – Actual Cost 10,000,000 -0- 10,00,0004
Gross Profit (L) 2,200,000 -0- 2,200,000

Requirement (4) – Output Method (Actual Cost Approach) – Applied to GP

% of Completion Method (OT) – Actual Cost Approach (Gross Profit) – No. 4 Requirement
2019 Rec. To Date Rec. in PYs Rec. CY
Revenue 12,100,000 -0- 12,100,000
Cost – Actual Cost 10,000,000 -0- 10,000,000
GP (L) 2,800,000 x ¾ 2,100,000 -0- 2,100,000

Problem VIII – VJD International

Requirement 1-4: (Fill in the blank approach)

2019 2020 2021 Total
Revenue 220,000 (2) 260,000 (3) 220,000 700,000
Cost 200,000 250,000 (4) 230,000 (5) 680,000
Gross Profit (1) 20,000 10,000 ( 10,000)

Requirement 6 Requirement 7
- Cost Recovery (PT) -% of Completion (OT)

2019 2020 2019 2020

Contract Price 700,000 700,000 700,000 700,000
CIEY 200,000 250,000 200,000 250,000
+: CIPY(s) ______-0- 200,000 ______-0- 200,000
CI to Date 200,000 450,000 200,000 450,000
+: EC to C (refer to Note) ______? *190,000 *450,000 *190,000
TEC ______? 640,000 650,000 640,000
Est’d GP ? 60,000 50,000 60,000
x:%ofC (CI to D/TEC) ______? __45/64 __20/65 __45/64
GP to date -0- 42,188 15,385 42,188
Less: GP in PY(s) _______- ____-0- _____- 15,385
GP Each Year ____-0- 42,188 15,385 26,803
Cost Recovery/ % of C % of C % of C
PT /Zero-Profit (estimates* (estimates* (estimates*
Approach available) available) available)
(refer to Note) if estimates* are available use % of C

Note: If estimates not given (or no estimated cost to complete), therefore use Cost Recovery
(PT) approach, therefore, Revenue should be recognized equivalent to the Cost
Incurred, no GP recognized.

- End -

*** Ask not for a larger garden, but for a finer seeds. ***
*** Ask not for a lighter burden, but for a broader shoulder. ***
*** I swear to you there are divine things more beautiful than words can tell. ***
***Wisdom is the quality that keeps you from getting into situations where you need it.***
***Every man is the architect of his own character.***
***Patience is bitter but its fruit is sweet.***
***Great passions, can elevate us to the things that we want to deliver.***
*Opportunities are usually disguised as hardwork, so most people don’t recognize them*
*Impossibilities vanish when a man confront a mountain with GOD in his side*
*Sometimes a winner is just a dreamer who never gave up*
*Success consists of a little daily effort*