LONG-TERM CONSTRUCTION CONTRACTS PROBLEMS

1. Agency MMM received a progress billing for the construction of a building as follows:
Progress billings: 70% x P10,000,000 P 7,000,000
Less: Recoupment of advances made (70% x P1,500,000) P 1,050,000
Net billings P 5,950,000
The entry to record the above billings:
2. Bonifacio contractors had a 3-year construction contract in 2012 for P900,000. The company
uses the percentage-of-completion method for financial statement purposes. Income to be
recognized each year is based on the ratio of cost incurred to total estimated cost to complete
the contract. Data on this contract follows:
Accounts receivable construction contract billings P 30,000
Construction in progress P 93,750
Less: Amounts billed P 84,375
10% retention P 9,375
Net income recognized in 2012 (before tax) P 15,000
Bonifacio Contractors maintains a separate bank account for each construction contract. Bank
deposits to this contract amounted to P50,000. What was the estimated total income before tax
on this contract?
3. Party Construction Co. enters into a contract on January 2, 2012 to construct a 20-storey office
building for P400 million (M). During the construction period, many change orders are made to
the original contract. The following schedule summarizes these changes made in 2012:

Determine the gross profit to be recognized during the year under the cost to cost percentage of
completion method. (Round off percentage of completion rate at one decimal percentage)
4. On January 1, 2012 a real estate company, SMCI, has entered into a long term specifically
negotiated construction contract to construct a building on a piece of land owned by SMCI and
after construction is complete , to deliver the entire property to a customer. This is a situation
common in the wholesale market when constructing a shopping mall, than in the retail market.
SMCI applies the percentage of completion method to account for contract revenues and
expenses. The relative percentage of cost (POC) incurred is considered a reliable method for
measuring the progress of the contract. Additional information were as follows: (M=million)
Total cost of land P2M
Estimated total cost of construction P8M
Estimated total cost of contract P10M
Agreed purchase price P11M
Construction has commenced and at the reporting date (12/31/12), total construction cost
incurred amount to P2M. If the contract is considered to be a multiple element contract, and
that the legal title of land will pass to the buyer after construction of the building is complete,
what is the amount gross amount due from customer recognized in the financial statements of
SMCI assuming fair value of the land is P2.5M?