Question

Boxer Corporation has consistently used the percentage-of-completion method of recognizing income. In 2018, Boxer started work on a $45,000,000 construction contract that was completed in 2019. The following information was taken from Boxer's accounting records in 2018.

Progress billings $15,400,000

Costs incurred 14,700,000

Collections 9,600,000

Estimated costs to complete 21,400,000

What amount of gross profit should Boxer have recognized in 2018 on this project?

Answer 1

PARTICULARS	AMOUNT(in $)
costs incurred till 2018	14,700,000
estimated costs to complete	21,400,000
total cost of construction	36,100,000
(less) contract price	45,000,000
gain/(loss)	89,000,000

an expected loss on the construction contract should be recognised as an expense immediately.

contract revenue is recognised only to the extent of costs incurred that are expected to be recovered.as the outcome of the contract cannot be estimated reliably,no profit is recognised

as per AS 7 CONSTRUCTION CONTRACT when the outcome of the construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract shoul be recognised as income or expense respectively by reference to the stage of completion of the contract activity at the reporting date

accordingly,

contract work in progress= 14,700,000/36,100,000*100

40.72%

proportion of total contract value to be recognised as turnover = 40.72% of $45,000,000

= $18,324,000