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    Long-Term Construction Contracts (Pfrs 15) : Start of Discussion

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    Erica Daprosa
    The document discusses accounting for long-term construction contracts under PFRS 15, including applying the percentage of completion and cost recovery methods to recognize revenue over time or at a point in time. It also covers accounting for contract costs, variable consideration, modifications, and assessing contract profitability. Examples are provided to illustrate calculating revenues, costs, and profit/loss on construction contracts using the percentage of completion and zero profit methods.

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    Long-Term Construction Contracts (Pfrs 15) : Start of Discussion

    Uploaded by

    Erica Daprosa
    1K views3 pages
    The document discusses accounting for long-term construction contracts under PFRS 15, including applying the percentage of completion and cost recovery methods to recognize revenue over time or at a point in time. It also covers accounting for contract costs, variable consideration, modifications, and assessing contract profitability. Examples are provided to illustrate calculating revenues, costs, and profit/loss on construction contracts using the percentage of completion and zero profit methods.

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    The document discusses accounting for long-term construction contracts under PFRS 15, including applying the percentage of completion and cost recovery methods to recognize revenue over time or at a point in time. It also covers accounting for contract costs, variable consideration, modifications, and assessing contract profitability. Examples are provided to illustrate calculating revenues, costs, and profit/loss on construction contracts using the percentage of completion and zero profit methods.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    1K views3 pages

    Long-Term Construction Contracts (Pfrs 15) : Start of Discussion

    Uploaded by

    Erica Daprosa
    The document discusses accounting for long-term construction contracts under PFRS 15, including applying the percentage of completion and cost recovery methods to recognize revenue over time or at a point in time. It also covers accounting for contract costs, variable consideration, modifications, and assessing contract profitability. Examples are provided to illustrate calculating revenues, costs, and profit/loss on construction contracts using the percentage of completion and zero profit methods.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Chapter 5:

    LONG-TERM CONSTRUCTION CONTRACTS (PFRS


    15)
    Learning Objectives:
     Apply the principles under PFRS 15 to account for revenues
    from construction contracts.
     Account for contract costs on construction contracts.
     Account for onerous construction contracts.
     Account for variable consideration, contract modifications, and
    other changes in the transaction price of a construction
    contract.
     Account for construction contracts wherein the collectability of
    contract revenue is uncertain or becomes uncertain.

    Start of Discussion

    CONSTRUCTION CONTRACT
    A contract specifically negotiated for the construction of an asset or a
    combination of assets that are closely interrelated or interdependent
    in terms of their design, technology and function or their ultimate
    purpose or use.

    Construction Contract may be either: Cost plus contract


    a. Cost plus variable free contract
    b. Cost plus fixed contract

    Recognition Principle of Construction Revenue√


    - When the entity satisfies the performance obligation.

    Two Modes:
     Satisfaction over a period of time
    1. Percentage of completion
    2. Cost recovery method

     Satisfaction at a point in time


    -End-
    SELF-CHECK TEST: REQUIRED:
    1. Under the percentage of completion method, how much is the
    The Ethan Construction Company was the lowest bidder on a Construction-in-Progress, net of Progress Billings at December 31,
    specialized equipment contract. The Contract bid was P13,125,000 2021?
    with an estimated cost to complete the project of P7,800,000. The 2. Under the zero-profit method, how much is the Construction-in-
    contract period was 35 months beginning January 1, 2020. The Progress, net of Progress Billings at December 31, 2021?
    company uses cost to cost method to estimate profits. A record of 3. Under the percentage of completion method, how much is the
    construction activities for the years 2020 to 2022 follows: realized gross profit/(loss) at December 31, 2022?

    2020 2021 2022


    Actual cost
    6,562,500 10,968,750 11,625,000
    incurred to date
    Estimated cost
    4,375,000 1,218,750 -----
    to complete
    Progress billings 3,000,000 12,000,000 13,125,000
    Cash receipts
    5,625,000 3,750,000 3,750,000
    during the year

    REQUIRED:
     Using Percentage of completion method, compute for the
    following:
    1. Realized gross profit in 2020, 2021 and 2022
    2. Revenue earned in 2020,2021 and 2022
    3. CIP net in 2020,2021 and 2022

     Using Zero-profit method, compute for the following:


    4. Realized gross profit in 2020, 2021 and 2022
    5. Revenue earned from 2020 to 2022
    6. CIP net in 2020,2021 and 2022

    On July 1, 2020, ABC Corporation contracted to build an office


    building for XYZ Co. for a total contract price of P975,000.

    2020 2021 2022


    Contract cost
    75,000 600,000 1,050,000
    incurred to date
    Estimated cost
    675,000 400,000 -----
    to complete
    Billings to XYZ 150,000 550,000 275,000

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