CCS is a construction company that builds roads in the Northwest Territories (NWT). CCS uses the percentage-of-completion method and measures completion...

CCS is a construction company that builds roads in the Northwest Territories (NWT). CCS uses the percentage-of-completion method and measures completion on the basis of kilometres completed. In November 20X9, CCS signed an agreement with the NWT government to build 50 kilometres of new road for a total cost of $40 million. The contract would likely take three years to complete and would start in the spring of 20X10. Over the next three years, 15 kilometres were completed in 20X10, 22 kilometres completed in 20X11, and 13 kilometres completed in 20X12.

Required:

Calculate the amount of revenue that would be recognized in 20X10, 20X11, and 20X12.

Expert Solution

Revenue for each year is calculated as follows:

20X10 : 15/50 x $40 million = $12 million

20X11: 22/50 x $40 million = $17.6 million

20X12: 13/50 x $40 million = $10.4 million

Alternatively

Revenue for each year is calculated as follows:

20X10 : 15/50 x $40 million = $12 million

20X11: Total revenue earned to date 37/50 x $40 million = $29.6 million

Revenue to recognize in 20X11: Total revenue earned to date less revenue recognized in previous years: $29.6 million less $12 million = $17.6 million

20X12: Total revenue earned to date 50/50 x $40 million = $40 million

Revenue to recognize in 20X12: Total revenue earned to date less revenue recognized in previous years: $40 million less $29.6 million = $10.4 million

Junaid answered 1 year ago

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