Question 1

On July 1, 2010, DM Construction Corp. contracted to build an office building for FM, Inc. for a
total contract price of P365,000

2010 2011 2012

Contract cost incurred P70,000 P186,000 P134,000
Estimated costs to complete the contract 210,000 137,000 -
Billings to FM, Inc. 38,500 284,000 42,500
Which of the following statements is true?
The Construction in Progress, net of Progress Billings at December 31, 2011, using zero

profit method is P77,250 current liability.

The Construction in Progress account balance at December 31, 2011, using percentage of

completion method is P228,000.

The recognized loss in 2011 using zero profit method is P49,250.

The realized gross profit in 2012 using percentage of completion method is P3,000 and the

recognized loss in 2012 using the zero profit method is P25,000.

Practical Accounting 2 - Construction Accounting (Difficult)

Question 2
The Allan Company is attempting to determine the total revenue on a contract to build a factory
for The Marcelo Company. All calculations are in accordance with PAS 11:
Construction contracts, and Allan has identified the following:

Initially agreed fixed contract price 800,000

Variation in the contract (see Note 1) 100,000
Penalty (Note 2) 30,000
1. During the contract Marcelo changed the specification of the air conditioning systems. The
changes specification has been agreed but a new contract with the new price has not yet been
signed, although an increase in the contract price of around P100,000 is highly probable.
2. A strike at Allan caused a delay for which the penalty in the original contract was P30,000.
This was agreed by both parties.
At what amount should the total contract revenue be stated?
 770,000

900,000

800,000

870,000

Practical Accounting 2 - Construction Accounting (Difficult)

Question 1
A construction contractor has a fixed price contract for P100,000 to construct a building (the
project).
The contractor's initial estimate of total contract costs is P60,000. It will take two years to
construct the building.
At the end of the first year of the project (31 December 2013) the contractor has incurred costs
of P20,000 on the contract, including P2,000 on cement that is held offsite. The entity's estimate
of total contract costs has stayed the same.
The contractor determines the stage of completion of the construction contract by reference to
the proportion that costs incurred for work performed to date bear to the estimated total costs.
Determine the revenue for the year 2013:
30,000

32,000

31,333

33,333

Practical Accounting 2 - Construction Accounting (Average)

Question 2
A construction contractor has a fixed price contract for P100,000 to construct a building (the
project).
The contractor's initial estimate of total contract costs is P60,000. It will take two years to
construct the building.
At the end of the first year of the project (31 December 2013) the contractor has incurred costs
of P20,000 on the contract, including P2,000 on cement that is held offsite. The entity's estimate
of total contract costs has stayed the same.
The contractor determines the stage of completion of the construction contract by reference to
the proportion that costs incurred for work performed to date bear to the estimated total costs.
Determine the expenses for the year 2013:
13,333

20,000

18,000

33,333

Practical Accounting 2 - Construction Accounting (Average)

Question 3
A construction contractor has a fixed price contract for P100,000 to construct a building (the
project).
The contractor's initial estimate of total contract costs is P60,000. It will take two years to
construct the building.
At the end of the first year of the project (31 December 2013) the contractor has incurred costs
of P20,000 on the contract, including P2,000 on cement that is held offsite. The entity's estimate
of total contract costs has stayed the same.
The contractor determines the stage of completion of the construction contract by reference to
the proportion that costs incurred for work performed to date bear to the estimated total costs.
Determine the profit for the year 2013:
11,000

11,333

13,333
 12,000

Practical Accounting 2 - Construction Accounting (Average)

Question 4
A construction contractor has a fixed price contract for P100,000 to construct a building (the
project).
The contractor's initial estimate of total contract costs is P60,000. It will take two years to
construct the building.
At the end of the first year of the project (31 December 2013) the contractor has incurred costs
of P20,000 on the contract, including P2,000 on cement that is held offsite. The entity's estimate
of total contract costs has stayed the same.
The contractor determines the stage of completion of the construction contract by reference to
the proportion that costs incurred for work performed to date bear to the estimated total costs.
If the contractor determines the stage of completion of the construction contract by reference to
independent surveys of work performed. At the end of 2013 the project was certified to be 28
percent complete.
Determine the revenue, expenses, and profit for the year 2013:
Revenue (28,000); Expense (18,000); Profit (10,000)

Revenue (28,000); Expense (20,000); Profit (8,000)

Revenue (29,200); Expense (18,000); Profit (11,200)

Revenue (31,200); Expense (20,000); Profit (11,200)

Practical Accounting 2 - Construction Accounting (Average)

Question 5
A construction contractor has a fixed price contract for P100,000 to construct a building (the
project).
The contractor's initial estimate of total contract costs is P60,000. It will take two years to
construct the building.
At the end of the first year of the project (31 December 2013) the contractor has incurred costs
of P20,000 on the contract, including P2,000 on cement that is held offsite. The entity's estimate
of total contract costs has stayed the same.
The contractor determines the stage of completion of the construction contract by reference to
the proportion that costs incurred for work performed to date bear to the estimated total costs.
If the contractor determines the stage of completion of the construction contract by reference to
independent surveys of work performed. At the end of 2013 the project was certified to be 28
percent complete.
Determine the expenses for the year 2013:
16,000

12,000

18,000

20,000

Practical Accounting 2 - Construction Accounting (Average)

Question 6
Jim Builders constructed a new subdivision during 2013 and 2014 under contract with Cactus
Development Co. Relevant data are summarized below:

Contract amount P3,000,000

Costs 2013 1,200,000
2014 600,000
Gross profit 2013 800,000
2014 400,000
Contract billings 2013 1,500,000
2014 1,500,000
The Company uses the percentage-of-completion method to recognize revenue.
What would be the journal entry to record revenue in 2014?
(DR) Accounts receivable 1,500,000

(CR) Revenue for long-term contracts 1,500,000

(DR) Construction-in-progress 400,000
(DR) Costs of construction 600,000
(CR) Revenue for long-term contracts 1,000,000
(DR) Costs of construction 2,000,000

(DR) Gross profit 1,000,0000

(CR) Revenue for long-term contracts 3,000,000
(DR) Accounts receivable 1,500,000

(CR) Costs of construction 600,000

(CR) Gross profit 600,000
(CR) Deferred revenue 300,000

Practical Accounting 2 - Construction Accounting (Average)

Question 7
Jim Builders reports under PAS 11, and constructed a new subdivision during 2013 and 2014
under contract with Cactus Development Co. Relevant data are summarized below:

Contract amount P3,000,000

Costs 2013 1,200,000
2014 600,000
Gross profit 2013 800,000
2014 400,000
Contract billings 2013 1,500,000
2014 1,500,000
The Company uses the cost recovery method under PAS 11 to recognize revenue.
What would be the journal entry SDH would use to record revenue in 2014?
(DR) Accounts receivable 1,500,000

(CR) Revenue for long-term contracts 1,500,000

(DR) Construction-in-progress 400,000

(DR) Costs of construction 600,000

(CR) Revenue for long-term contracts 1,000,000
(DR) Costs of construction 2,000,000

(DR) Gross profit 1,000,000

(CR) Revenue for long-term contracts 3,000,000
(DR) Construction-in-progress 1,200,000

(DR) Costs of construction 600,000

(CR) Revenue for long-term contracts 1,800,000

Practical Accounting 2 - Construction Accounting (Average)

Question 8
A construction contract has a fixed price contract for P100,000 to construct a building of a
design that has never before been constructed and using materials that have never before been
used in the construction of building (the project).
The contractor began construction of the building in 2013 and expects that construction will take
at least 5 years. In 2013, the contractor incurred P5,000 contract costs on the project.
At the end of 2013, the contractor cannot estimate the outcome of the contract with sufficient
reliability to estimate the project's percentage of completion (i.e., because of the uncertainties
arising from the new design and new materials, the entity cannot estimate total expected
contract costs with sufficient reliability). It is highly likely that the contract price will be received
from the customer.
At the end of 2013 the contractor must recognize revenue of:
Nil or zero

5,000

100,000

Incomplete data

Practical Accounting 2 - Construction Accounting (Average)

Question 9
On July 1, 2012, XYZ Construction Corp. contracted to build an office building for ABC. Inc. for a
total contract price of P975,000.

2012 2013 2014

 Contract cost incurred to date 75,000 600,000 1,050,000
Estimated costs to complete the contract 675,000 400,000 -
Billings to ABC, Inc. 150,000 550,000 275,000
How much is the Construction in Progress account balance at December 31, 2013, using the
percentage of completion method?
900,000

575,000

825,000

350,000

Practical Accounting 2 - Construction Accounting (Average)

Question 10
Jim Builders constructed a new subdivision during 2013 and 2014 under contract with Cactus
Development Co. Relevant data are summarized below:

Contract amount P3,000,000

Costs 2013 1,200,000
2014 600,000
Gross profit 2013 800,000
2014 400,000
Contract billings 2013 1,500,000
2014 1,500,000
The Company uses the percentage-of-completion method to recognize revenue.
What would be the journal entry made in 2013 to record revenue?
(DR) Accounts receivable 1,500,000

(CR) Revenue for long-term contracts 1,500,000

(DR) Accounts receivable 2,300,000

(CR) Gross profit 800,000

(CR) Revenue for long-term contracts 1,500.000
Construction-in-progress 800,000

Costs of construction 1,200,000

Revenue for long-term contracts 2,000,000
Accounts receivable 1,500,000

Billings in excess of costs 300,000

Revenue for long-term contracts 1,800,000

Practical Accounting 2 - Construction Accounting (Average)

Question 11
A contractor enters into a construction contract on January 1, 2011. The contractor agrees to a
fixed price of P9,000 to build a bridge. The contractor's initial estimate of contract costs is
P8,000. The contract expects that it will take three years to build the bridge.
The contractor has a December 31 year-end.
By the end of the first year of the contract (December 31, 2011), the contractor's estimate of
total costs has increased to P8,050 (costs incurred in 2011 amounted to P2,093).
In 2012, the customer and contractor agree to a variation resulting in an increase in contract
revenue of P200 and estimated additional contract costs of P150. At the end of 2012, costs
incurred of P4,075 include P100 paid for standard materials stored at the site to be used in 2013
to complete the project.
The contractor determines the stage of completion of the contract by calculating the proportion
that contract costs incurred for work performed to date bear to the latest estimated total contract
costs.
Determine the revenue for the year 2012:
4,468

2,340

5,071

4,568

Practical Accounting 2 - Construction Accounting (Average)

Question 12
A contractor enters into a construction contract on January 1, 2011. The contractor agrees to a
fixed price of P9,000 to build a bridge. The contractor's initial estimate of contract costs is
P8,000. The contract expects that it will take three years to build the bridge.
The contractor has a December 31 year-end.
By the end of the first year of the contract (December 31, 2011), the contractor's estimate of
total costs has increased to P8,050 (costs incurred in 2011 amounted to P2,093).
In 2012, the customer and contractor agree to a variation resulting in an increase in contract
revenue of P200 and estimated additional contract costs of P150. At the end of 2012, costs
incurred of P4,075 include P100 paid for standard materials stored at the site to be used in 2013
to complete the project.
The contractor determines the stage of completion of the contract by calculating the proportion
that contract costs incurred for work performed to date bear to the latest estimated total contract
costs.
Determine the expenses for the year 2012:
3,975

2,093

4,075

4,568

Practical Accounting 2 - Construction Accounting (Average)

Question 13
A contractor enters into a construction contract on January 1, 2011. The contractor agrees to a
fixed price of P9,000 to build a bridge. The contractor's initial estimate of contract costs is
P8,000. The contract expects that it will take three years to build the bridge.
The contractor has a December 31 year-end.
By the end of the first year of the contract (December 31, 2011), the contractor's estimate of
total costs has increased to P8,050 (costs incurred in 2011 amounted to P2,093).
In 2012, the customer and contractor agree to a variation resulting in an increase in contract
revenue of P200 and estimated additional contract costs of P150. At the end of 2012, costs
incurred of P4,075 include P100 paid for standard materials stored at the site to be used in 2013
to complete the project.
The contractor determines the stage of completion of the contract by calculating the proportion
that contract costs incurred for work performed to date bear to the latest estimated total contract
costs.
Determine the revenue for the year 2013:
4,468

2,340

2,392

2,592

Practical Accounting 2 - Construction Accounting (Average)

Question 14
A contractor enters into a construction contract on January 1, 2011. The contractor agrees to a
fixed price of P9,000 to build a bridge. The contractor's initial estimate of contract costs is
P8,000. The contract expects that it will take three years to build the bridge.
The contractor has a December 31 year-end.
By the end of the first year of the contract (December 31, 2011), the contractor's estimate of
total costs has increased to P8,050 (costs incurred in 2011 amounted to P2,093).
In 2012, the customer and contractor agree to a variation resulting in an increase in contract
revenue of P200 and estimated additional contract costs of P150. At the end of 2012, costs
incurred of P4,075 include P100 paid for standard materials stored at the site to be used in 2013
to complete the project.
The contractor determines the stage of completion of the contract by calculating the proportion
that contract costs incurred for work performed to date bear to the latest estimated total contract
costs.
Determine the expenses for the year 2013:
3,975

2,093
 2,132

2,032

Practical Accounting 2 - Construction Accounting (Average)

Question 15
A construction contractor has a fixed price contract for P100,000 to construct a building (the
project). The contractor's initial estimate of total contract costs was P60,000. At the end of the
first year of the project (2013) the contactor has incurred P90,000 contract costs and it expects
to incur a further P30,000 to complete the project.
The contractor determines the stage of completion of the construction contract by reference to
the proportion that costs incurred for work performed to date bear to the estimated total costs.
Determine the revenue for the year 2013 by using the actual cost approach:
95,000

75,000

70,000

110,000

Practical Accounting 2 - Construction Accounting (Average)

Question 16
A construction contractor has a fixed price contract for P100,000 to construct a building (the
project). The contractor's initial estimate of total contract costs was P60,000. At the end of the
first year of the project (2013) the contactor has incurred P90,000 contract costs and it expects
to incur a further P30,000 to complete the project.
The contractor determines the stage of completion of the construction contract by reference to
the proportion that costs incurred for work performed to date bear to the estimated total costs.
Determine the expenses for the year 2013 by using the actual cost approach:
 95,000

90,000

110,000

100,000

Practical Accounting 2 - Construction Accounting (Average)

Question 17
A construction contractor has a fixed price contract for P100,000 to construct a building (the
project). The contractor's initial estimate of total contract costs was P60,000. At the end of the
first year of the project (2013) the contactor has incurred P90,000 contract costs and it expects
to incur a further P30,000 to complete the project.
The contractor determines the stage of completion of the construction contract by reference to
the proportion that costs incurred for work performed to date bear to the estimated total costs.
Determine the profit for the year 2013 by using the actual cost approach:
20,000

15,000

25,000

30,000

Practical Accounting 2 - Construction Accounting (Average)

Question 18
The Minyong Company, a construction company, has a 31 December year-end. It is to build a
factory for a client and has schedules its works as follows:

20 March 2012 Contract to be awarded and signed

25 April 2012 Construction work to commence
27 November Principal construction work to be
2012 completed
30 December Final completion of contract
2012
In accordance with PAS 11, Construction Contracts, the maximum expected period over which
the cost attributable to the contract should accumulate is
20 March 2012 to 30 December 2012

25 April 2012 to 27 November 2012

25 April 2012 to 27 November 2012

20 March 2012 to 27 November 2012

Practical Accounting 2 - Construction Accounting (Average)

Question 19
The Bem Company has just completed a 4 year contract to which the following relate:

Labor and materials costs 1,800

Machinery cost 600
Initial design costs 100
Disposal proceeds of machinery 50
What are the total contract costs, according to PAS 11 Construction contracts?
2,350,000

1,900,000

2,450,000

2,500,000

Practical Accounting 2 - Construction Accounting (Average)

Question 20
The Jones Company has the following amounts relating to construction contracts:

Items Pesos
Costs incurred 670,000
 Recognized 60,000
profits
Progress billings 250,000
Under PAS 11 Construction contracts, what is the gross amount due from customers for
contract work?
480,000

360,000

730,000

980,000

Practical Accounting 2 - Construction Accounting (Average)