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

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

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

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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