Question 2 Considering the following data for a project begu

Question 2. Considering the following data for a project begun in 2017 by Dominion Construction, with a contract price of $1,500,000. Dominion uses IFRS and their customer controls the building during the period of construction. 20172018 Current period costs Estimated additional costs to complete Progress billings Collection on billings-current year $200,000$200,000 400,000 150,000 700,000 40 175,000 100,000100,000 Using the table below, calculate the revenue to be recognized by Dominion Construction during 2017 and 2018. Assume that percentage of completion is measured by the ratio of costs incurred to date divided by total estimated construction costs. Round your percentage complete calculations to one decimal place. Using the information in your table, prepare all of the required journal entries for 2017 only. Year(s) 2017 2018

Solution

1. Calculation of Revenue to be recognized in both years.

2017:

Percentage of Completion = Total costs incurred in 2017 / estimated cost of construction

Total cost incurred in 2017 = 200,000

Total Estimated costs = 200,000 + 700,000 = 900,000

Percentage of Completion in 2017 = 200,000 / 900,000 = 22.2%

Revenue to be booked in 2017 = Total contract price x percentage of completion

= 1,500,000 x 22.2% = $333,000

2018:

Percentage of completion = (200,000 + 200,000) / (200,000 + 200,000 + 400,000)

= 50%

Total Revenue to be booked = 1,500,000 x 50% = $750,000

Revenue already booked in 2017 = $333,000

Revenue to be booked in 2018 = 750,000 - 333,000 = $417,000

C. Journal Entries for 2017

Date

Particulars

Debit

Credit

1

Construction in progress

TO Accounts Payable

(Being entry for costs incurred in 2017)

200,000

200,000

2

Construction in progress

Expenses

TO Revenue

(NOTE 1)

133,000

200,000

333,000

3

Accounts Receivable

TO Billings on construction contract

(Being billings made to client)

175,000

175,000

4

Cash

TO Accounts Receivable

(Being amount collected from customer)

100,000

100,000

NOTE 1: Journal entry for recording the revenue under percentage completion.

Revenue account will be credited by $333,000 calculated in part a. Out of total 333,000 amount of $200,00 is actual expense incurred in current year and the same will be booked as expense and debited in journal entry. Whereas, remaining amount of $133,000 will be debited in Construction in progress control account.

Date	Particulars	Debit	Credit
1	Construction in progress TO Accounts Payable (Being entry for costs incurred in 2017)	200,000	200,000
2	Construction in progress Expenses TO Revenue (NOTE 1)	133,000 200,000	333,000
3	Accounts Receivable TO Billings on construction contract (Being billings made to client)	175,000	175,000
4	Cash TO Accounts Receivable (Being amount collected from customer)	100,000	100,000