Question

NRE Construction Company commences the construction of specialised fast carriages on 1 July 2019. It signs a fixed-price contract for total revenue of $180million. It was revised to 185 million in 2022. The project is expected to be completed by the end of 30 June 2022. The expected cost at the commencement of construction was $160 million. The expected costs to complete a construction project can change throughout the project. The following data relate to the project:

	2020	2021	2022
	($ M)	($ M)	($ M)
Costs for the year	40	60	55
Costs incurred to date	40	100	155
Estimated costs to complete	120	60	-
Progress billings during the year	50	70	65
Cash collected during the year	30	70	85

The contract is completed as expected on 30 June 2022. NRE Construction Company uses the percentage-of-completion method to account for its construction contract. Company's financial year end 30 June every year.

REQUIRED

a) Compute the gross profit to be recognised for each of the three years

b) Provide the journal entries for each year. Assume the stage of completion can be reliably determined. (Exclude journal narrations)

Answer 1

a. Computation of  gross profit to be recognised for each of the three years:

b.