Robin Builders Ltd. contracted to build a high-rise for $6,000,000. Construction

Question

Robin Builders Ltd. contracted to build a high-rise for $6,000,000. Construction began in 2014 and is expected to be completed in 2017. Data for 2014 and 2015 are:

Using the percentage-of-completion method and the cost-to-cost basis,

a) How much gross profit should be reported for 2014? Show your calculation

b) How much gross profit should be reported for 2015? Show your calculation

c) Prepare the journal entry to record the revenue and gross profit for 2015

d) If the overall contract became unprofitable in 2015 due to cost over runs, state what Robin Builders would need to do at this point

2014 2015 Costs Incurred in the period $900,000 $1,700,000 Estimated Costs to complete $3,600,000 $2,400,000

Explanation / Answer

Particulars 2014 2015 Costs Incurred in the period $900,000 $1,700,000 Estimated Costs to complete $3,600,000 $2,400,000 Total cost $4,500,000 $4,100,000 Percentage of completion method 20.00% 41.46% Total cost incurrend /Total estimat cost Answer a) Answer b) Since it is more than the threshold limit therefore revenue can be recognised 20% on 6000000 and 41.46% - 20% already recognised 1200000 1287805 Journal entry c) Dr Cr Debtors A/c 1287805 To Sales recognise 1287805 d) If the entire project becomes unprofitable in 2015 then the builder can cancel the agreement aur revised the estimate cost and recognise revenue based on the threshol dvalue.

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