Construction Contract Question Example To Compute The Percentage Of Completion and Disclosure/Presentation In the Income Statement And Balance Sheet.

November 10th, 2009 Comments off
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 On 1 st January 2007, XYZ Construction Co Ltd has signed a fixed price contract of $ 42 million to build a bridge over a period of two years. At 31st December 2007, the following information are as follows:- 

  $ million
Cost of construction material

10

Site labor cost

9

Depreciation of plant & machinery used

2

Administrative costs

2

Estimated cost to complete

14

Progress billing

9

 Required:

(a)     Calculate the percentage of completion

(b)     Amounts to be disclosed in the Income statement

(c)     Amounts to be disclosed in the Balance sheet. 

Suggested Answer:

 Cost to date 

Cost Incurred to date $ million
Cost of construction material

10

Site labor cost

9

Depreciation of plant & machinery used

2

Cost to date

21

Cost to complete

14

Total estimated cost

35

 a.      Percentage of completion

 = Cost to date/ Total estimated cost(above) x 100%

= 21/35 x 100 = 60%

 (b) Presentation in Income Statement

  Income Statement for Year ended 31 st December 2007 

  $ million
Revenue ( $42m x 60%)

25.2

Less: Costs (60% x Rm350m)

21.0

Profit

4.2

 © Presentation in Balance Sheet

 Balance Sheet as at 31st December 2007 

  $ million
Current Assets

$’m

Amount due from customer

16.2

 

 

Workings:

$

Contract costs incurred to date

21

Recognized profits (less recognized losses)

4.2

 

25.2

Progress billing

(9)

Due from customer

16.2

  

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Financial Accounting

 
 

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