On January 1,2021, Mutya Company enters into a contract wit ha cutomer to build a customized asset.

The promise
asset during construction. The consideration is 6,235,000 but that amount will increase by 10,000 for each day befo
The entity comonly includes performance bonus in its contracts and based on prior experience, estimate the followi
Completed by: Probability
September 29, 2023 65%
September 28, 2023 25%
September 27, 2023 5%
September 26, 2023 5%
In addition, upon completion of the asset, a third party will inspect and assign a rating based on metrics that are def
150,000. Mutya Company that based on prior experience, the asset constructed will achieve the specified rating.
Data for the three-year constructuin period follows:
2021 2022
Cost incurred each year 1,782,000 2,148,000
Estimated costs to complete 3,618,000 1,570,000
Contract billings each year 1,200,000 1,900,000
Cash Collections each year 1,000,000 1,800,000
Operating Expenses 100,000 90,000

Included in the cost incurred in 2022 is materials (not customized ) costing 80,000 but only used during the third qu
Upon completion on September 27,2023 , the third party inspected the asset and determined that the rating was ac

Requirements:
1. Determine the transaction price
2. Determine the revenue to be reconized for 2021,2022, and 2023 respectively.
3. Determine the gross profit to be recognized for 2021,2022 and 2023 respectively
4. Determine the net profit that mutya will report for 2021,2022 and 2023
5. Assuming
6. Prepare the Journal
the Entries measure
entity cannot under TRADITIONAL ACCOUNTING
reliably the outcome and PFRS 15obligation.
of the performannce for 2021,2022 and 2023
Compute respect
for the reven
net profit to be recognized for 2021,2022,2023 respectively.
Solution:
1. Determine the transaction price

Fixed Contractbonus
Performance Priceof 10,000
each day of early completion
Completed by: Probability
1 day early completion 65% 6,500
2 days early completion 25% 5,000
3 days early completion 5% 1,500
4 days
to early completion
be received based on 5% 2,000
experience
Total Transaction Price

2. Determine the revenue to be reconized for 2021,2022, and 2023 respectively.

 2021 2022

Cost incurred
Divide: to date
Estimated cost in fullfiling 1,782,000 3,850,000
the contract 5,400,000 5,500,000
Percentage of Completion as of 33.00% 70.00%
is adjusted based on the actual result that
affects the variable consideration) 6,400,000 6,400,000
Revenue recognized to Date 2,112,000 4,480,000
Revenue recognized previous year 0 (2,112,000)
Revenue for the year 2,112,000 2,368,000

3. Determine the gross profit to be recognized for 2021,2022 and 2023 respectively
2021 2022
Revenue for the year 2,112,000 2,368,000
Cost incurred for the year (1,782,000) (2,068,000)
Gross profit for the year 330,000 300,000

4. Determine the net profit that mutya will report for 2021,2022 and 2023
2021 2022
Gross profit for the year 330,000 300,000
Operating Expense (100,000) (90,000)
Net profit for the year 230,000 210,000

5. Prepare the Journal Entries under TRADITIONAL ACCOUNTING and PFRS 15 for 2021,2022 and 2023 respect

TRADITIO
2021
DR CR
Construction in Progress 1,782,000
COST: Cash(or Various Credit) 1,782,000

Cost of Construction 1,782,000

Construction in Progress 330,000
REVENUE: Revenue 2,112,000

Accounts Receivable 1,200,000

BILLINGS: Progress billing 1,200,000
 Cash 1,000,000
COLLECTIONS: Accounts Receivable 1,000,000

Operating Expense 100,000

OPERATING EXPENSE: Various Credits 100,000
6. Assuming the entity cannot measure reliably the outcome of the performannce obligation. Compute for the reven
net profit to be recognized for 2021,2022,2023 respectively.
2021 2022 2023
Revenue 1,782,000 2,068,000 2,565,000
Cost (1,782,000) (2,068,000) (1,650,000)
Profit 0 0 915,000

Note: if the entity cannot measure reliably the outcome of the performance obligation, the entity shall account
for it as performance obligation satisfied AT A POINT IN TIME. Revenue will be recignized only to the extent of
the cost incurred that are expected to be recovered.
 stomized asset. The promise to transfer the asset is a performance obligation that is satisfied overtime because the customer
by 10,000 for each day before September 30,2023 that the asset is complete.
erience, estimate the following completion outcomes.

based on metrics that are defined in the contract. If the asset receives a specied rating, the entity will be entitled to an incentive
hieve the specified rating.

2023
1,570,000
0
?
3,615,000
70,000

only used during the third quarter of 2023

mined that the rating was achiedved for the incentive bonus

2021,2022 and 2023

ation. Compute respectively
for the revenue and

6,235,000

15,000
150,000
6,400,000 Note: Transaction price can change each year beacuse the
estimated on the variable consideration may also change.
 2023

5,500,000 Note: the 80,000 cost of materials is treated as an asset until the
time it is used in the construction in 2023,since this material is not
5,500,000 customized but have a general used by the entity.
100.00%
6,415,000
6,415,000
(4,480,000)
1,935,000

2023
1,935,000
(1,650,000)
285,000

2023
285,000
(70,000)
215,000

2021,2022 and 2023 respectively

TRADITIONAL ACCOUNTING
2022 2023
DR CR DR
Construction in Progress 2,068,000 Construction in Progres 1,650,000
Materials Inventory 80,000 Cash(or Various Credit)
Cash(or Various Credit) 2,148,000 Materials Inventory

Cost of Construction 2,068,000 Cost of Construction 1,650,000

Construction in Progress 300,000 Construction in Progress
Revenue 2,368,000 Revenue

Accounts Receivable 1,900,000 Accounts Receivable 3,315,000

Progress billing 1,900,000 Progress billing
 Cash 1,800,000 Cash 3,615,000
Accounts Receivable 1,800,000 Accounts Receivable

Operating Expense 90,000 Operating Expense 70,000

Various Credits 90,000 Various Credits
ation. Compute for the revenue and
overtime because the customer controls the

tity will be entitled to an incentive bonus of

 PFRS 15
23 2021 2022
CR DR CR
Contract Cost 1,782,000 Construction in Progress
1,570,000 Cash(or Various Credit) 1,782,000 Materials Inventory
80,000 Cash(or Various Credit)

Contract Asset 2,112,000 Contract Asset

285,000 Revenue 2,112,000 Revenue
1,935,000
Cost of Construction 1,782,000 Cost of Construction
Contract Costs 1,782,000 Contract Costs

Receivable 1,200,000 Receivable

3,315,000 Contract Asset 1,200,000 Contract Asset
 Cash 1,000,000 Cash
3,615,000 Receivable 1,000,000 Receivable

Operating Expense 100,000 Operating Expense

70,000 Various Credits 100,000 Various Credits
PFRS 15
2022 2023
DR CR DR CR
2,068,000 Construction in Progres 1,650,000
80,000 Cash(or Various Credit) 1,570,000
2,148,000 Materials Inventory 80,000

2,368,000 Contract Asset 1,935,000

2,368,000 Revenue 1,935,000

2,068,000 Cost of Construction 1,650,000

2,068,000 Contract Costs 1,650,000

1,900,000 Receivable 3,315,000

1,200,000 Contract Asset 3,315,000
1,800,000 Cash 3,615,000
1,800,000 Receivable 3,615,000

90,000 Operating Expense 70,000

90,000 Various Credits 70,000