Question

Beck Construction Company began work on a new building project on January 1, 2020. The project is to be completed by December 31, 2022, for a fixed price of $171 million. The following are the actual costs incurred and estimates of remaining costs to complete the project that were made by Beck's accounting staff:

Years	Actual costs incurred in each year			Estimated remaining costs to complete the project (measured at Dec. 31 of each year)
2020	$	47	million	$	94	million
2021	$	79	million	$	79	million
2022	$	52	million	$	0

Required:
What amount of gross profit (or loss) would Beck record on this project in each year, assuming that Beck recognizes revenue for this project upon completion of the project? (Loss amounts should be indicated with a minus sign. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Answer 1

Answer : Calculation of Gross Profit (or loss) Beck record on this project in each year :

Percentage of Completion = Actual cost incurred / (Actual cost incurred + Estimated Cost to be incurred )

Year 2020

Percentage of Completion = $47million / ($47million + $94million)

= $47million / $141million

= 33.33%

Revenue to be recognised = Fixed price X Percentage of Completion

= $171 million X 33.33%

= $57 million

Gross Profit = Revenue recognised - Actual cost incurred

= $57 million - $47million

= $10 million

Year 2021

Percentage of Completion = $79million / ($79million + $79million)

= $79million / $158million

= 50%

Revenue to be recognised = (Fixed price X Percentage of Completion) -  Revenue recognised in earlier period

= ($171 million X 50%) -  $57 million

= $85.5 million - $57 million

= $28.5 million

Gross Profit = Revenue recognised - Actual cost incurred

= $28.5 million - $79million

= ($50.5 million)

Year 2022

Percentage of Completion = $52million / ($52million + 0)

= 100%

Revenue to be recognised = (Fixed price X Percentage of Completion) -  Revenue recognised in earlier period

= ($171 million X 100%) - ($57 million + $28.5 million)

= $171 million - $85.5 million

= $85.5 million

Gross Profit = Revenue recognised - Actual cost incurred

= $85.5 million - $52million

= $33.5 million

Conclusion :

Year 2020 : Gross Profit = $10 million

Year 2021 : Gross Loss =  $50.5 million

Year 2022 : Gross Profit = $33.5 million