Revenue recognition: The RCC Construction Company uses the percentage of complet

Question

Revenue recognition: The RCC Construction Company uses the percentage of completation method of accounting. In 2014 the company strated to work on a contract it had received which provided for a contract price of p10,000,000. What is the revenue to b recognized in 2014 Php1,000,000 Php2,000,000 Php1,440,000 Php2,500,000 none of the above Determine the amount of gross profit that should be recognized in 2014? Php2,000,000 Php240,000 Php1, 200,000 Php8,00,000 none of the above Sm sells most of its consumer goods on installment basis during their 3-dats sale.One costomer bought a bed room showcase of p300,000 bedroom showcase (originally costing p365,000) payable in 4 equal annula installents. How much is the revenue to be recognized during the first year if dlivery basis is used ? P.0 P300,000 125,000 62,500 none of the above how much is the revenue to be recognized during the first year installment basis is used ? P0 p300,00 125,000 75,000 none of the above Revenue recognition method which dietates that revenue is recognized in the period in which goods are delivered or services (in full,not in partial) are provided production method delivery method installment method percentage of completion none of the above revenue recognitionmethod which states that revenue is only recognized when installment payments are received and a proporational part of the cost of sales is counted as a cost in the same period. production method delivery method installment percentage of completion none of the above

Explanation / Answer

(10-11)

10) Cost incurred till date = $1,200,000.

Estimated cost to be incurred till 31st 2014 will be $4,800,000.

Now as per percentage completion method

% of contract price to be recognized as revenue = cost incurred till date

                                                                         ----------------------------------------------------------------------------------

                                                                          cost incurred till date +expected cost to be incurred

                                                                      = 1,200,000

                                                                         --------------------------

                                                                         1,200,000+4,800,000

                                                                       = 20%

Therefore revenue to be recognized in 2014 is 20% of contract price that is 20% of 10,000,000 =2,000,000.

So the correct option in the given question is option C.

11) Gross profit = revenue for 2014 - cost of 2014

                       = 2,000,000              -    1,200,000

                      (as calculaed above)              (as given)

                       = $ 8,00,000.

So the correct option in the given question is option D.

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