Question

In: Finance

Stone Age Construction Pte Ltd entered into a construction contract to build a commercial building for Bintang Ltd for $9,200,000.

Stone Age Construction Pte Ltd entered into a construction contract to build a commercial building for Bintang Ltd for $9,200,000. Construction commenced on 1 January 2021. The following details relate to the construction project as at 31 December 2021:

                                                   S'000

Progress billing to-date             5,520

Cash receipt to-date                  5,120

Costs incurred to-date               4,032

Estimated total costs                  6,400

Stone Age Construction Pte Ltd accounted for the contract using the percentage-of-completion method.

Required:

(a) For the year ended 2021, calculate the percentage of completion to-date, revenue recognised for the year and the profit recognised for the year.

(b) Prepare the necessary journal entries at the end of 2021 to record the above transactions relating to the contract.

Solutions

Expert Solution

a)

Percentage of completion to date = Cost incurred to date/Estimated total costs 

                                                                 = $4032000/$6400000 

                                                                 = 63%

 

Revenue recongnised for the year = Percentage of completion to date*Contract value 

                                                                  = 63%*$9,200,000 

                                                                 = $5,796,000

 

Profit recognised for the year = Revenue recognised for the year - Cost incurred in year 

                                                          = $5796000 - $4032000 

                                                          = $ 1764000

 

b) Journal entries

1) Construction in process ..... Dr $4032000

To Payable                                        $4032000

 

2) Account Receivable ...... Dr $5520000

To Billings                                   $5520000

 

3) Cash ........            Dr $5120000

To Account Receivabe $5120000

 

4) CIP ........ Dr $1,764,000

Contruction expenses .... Dr $4,032,000

To Contruction reveune         $5,796,000

Nabeel answered 1 year ago
Next > < Previous

Related Solutions

Raider Red Construction entered into a contract to build a commercial building for $3,600,000. Raider Red...
Raider Red Construction entered into a contract to build a commercial building for $3,600,000. Raider Red Construction uses the percentage-of-completion method for recognizing revenue on the project. Construction began in September of 2018 and the building was completed in June of 2020. The company provided the following additional information on the project. 2018 2019 2020 Costs incurred to date $                 725,000 $              2,100,000 $              3,400,000 Estimated costs to complete $              2,175,000 $              1,400,000 $                             -   Billings during the year $                ...
Problem 3 An entity entered into a construction contract to build a condo building at a...
Problem 3 An entity entered into a construction contract to build a condo building at a fixed price of $54,000,000. Construction started in 20x0 and ended in 20x3. Data on the contract is as follows (in ‘000’s): 20x0 20x1 20x2 20x3 Costs incurred during the year $ 6500 19500 25000 5800 Estimated costs to complete 38500 26000 6500 - Billings 18000 18000 - 18000 For each of the parts below, prepare the ‘mini’ income statement for the project for each...
A construction company entered into a fixed-price contract to build an office building for $28 million....
A construction company entered into a fixed-price contract to build an office building for $28 million. Construction costs incurred during the first year were $8 million and estimated costs to complete at the end of the year were $12 million. During the first year the company billed its customer $10 million, of which $4 million was collected before year-end. What would appear in the year-end balance sheet related to this contract using the percentage-of-completion method? (Enter your answers in whole...
A construction company entered into a fixed-price contract to build an office building for $38 million....
A construction company entered into a fixed-price contract to build an office building for $38 million. Construction costs incurred during the first year were $12 million and estimated costs to complete at the end of the year were $18 million. During the first year the company billed its customer $14 million, of which $7 million was collected before year-end. What would appear in the year-end balance sheet related to this contract using the percentage-of-completion method? (Enter your answers in whole...
ABC Ltd (“ABC”) entered into a contract on 1st January 20x6 to build a factory building...
ABC Ltd (“ABC”) entered into a contract on 1st January 20x6 to build a factory building for its customer on its customer’s land for $20 million. The completion is expected to be in two years’ time. ABC’s policy is to bill its clients based on 60% in the first year and the balance upon completion of the project. ABC has a 31st December financial year end. It has adopted FRS 115 Revenues from Contracts with Customers and adopts the input...
Rookie Construction Limited (RCL) entered into a contract to construct a building for $975,000. The contract...
Rookie Construction Limited (RCL) entered into a contract to construct a building for $975,000. The contract provided for progress payments. RCL’s accounting year ends December 31. Work began under the contract on August 1, 2019, and was completed on October 31, 2021. RCL uses the percentage-of-completion method to account for this long-term contract. Construction activities are summarized below: 2019 2020 2021 Construction costs incurred to date 180,000 630,000 825,000 Estimated remaining costs to complete 630,000 190,000 0 Progress Billings during...
At the beginning of 2012, Massachusetts Road Construction entered into a contract to build a road...
At the beginning of 2012, Massachusetts Road Construction entered into a contract to build a road for the government. Construction will take 3 years. The following information as of December 31st, 2012 is available for the contract: Total revenue according to contract $15,000 Updated estimated cost in 2013-2014 period $7,200,000 Cost incurred during 2012 $4,800,000 Assume that the company estimates percentage complete based on costs incurred as a percentage of total estimated costs. Under the Percentage-of-Completion method, how much revenue...
On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball...
On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $410 million. The expected completion date is April 1, 2020, just in time for the 2020 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions): 2018 2019 2020 Costs incurred during the year $ 50 $ 150 $ 45 Estimated costs to complete as of...
On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball...
On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $410 million. The expected completion date is April 1, 2020, just in time for the 2020 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions): 2018   Costs incurred during the year $ 50 Estimated costs to complete as of December 31 $200 2019  Costs incurred during...
On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a...
On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,000,000. During 2021, costs of $2,000,000 were incurred, with estimated costs of $4,000,000 yet to be incurred. Billings of $2,500,000 were sent, and cash collected was $2,250,000. In 2022, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2022 billings were $2,750,000, and $2,475,000 cash was collected. The project was completed in 2023 after additional costs of...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT