10 . Revenue and Construction Contracts Case 377 Entity TW has obtained a fixed price contract from DEF Company for $20,000 million Study 10A.3 to build a superhighway between Taipei and Taichung. The initial amount of revenue agreed in the contract is $20,000 million. Entity TW's initial estimate of contract costs is $15,500 million. It will take three years to build the superhighway. By the end of Year 1, Entity TW's estimate of contract costs has increased to $15,800 million. In Year 2, DEF Company approves a variation resulting in an increase in contract revenue of $600 million and estimated additional contract costs of $560 million. At the end of Year 2, costs incurred include $300 million for standard materials stored at the site to be used in Year 3 to complete the project. Entity TW determines the stage of completion of the contract by calculating the proportion that contract costs incurred for work performed to date bear to the latest estimated total contract costs. A summary of the financial data during the construction period is as follows: OTE Year 1 Year 2 Year 3 $ million $ million $ million Initial amount of revenue agreed in contract 20,000 20,000 20,000 600 600 Variation . .. . . . . . . . . . . .. . . 20,000 20,600 20,600 Total contract revenue . . . . . ate 11,000 16,360 Contract costs incurred to date 5,800 10,000 5,360 Contract costs to complete . . . . ... . . . . . . . . enue 15,800 16,360 16,360 Total estimated contract costs . . . . . . f Year 4,240 240 4,200 e used Estimated profit ....... . . . . . . . . . . . . . . . .... crease in Required: million. ulating the a. Determine the stage of completion of the contract by the end of Years 1, 2 and 3. latest b. Determine the amounts of revenue, expenses and profit recognised in the statement of comprehensive nsive income for each of Years 1, 2 and 3 using the percentage of to complete completion method. C. Prepare journal entries to account for the contract revenues and expenses for Year 1. All its contract10 . Revenue and Construction Contracts Case 377 Entity TW has obtained a fixed price contract from DEF Company for $20,000 million Study 10A.3 to build a superhighway between Taipei and Taichung. The initial amount of revenue agreed in the contract is $20,000 million. Entity TW's initial estimate of contract costs is $15,500 million. It will take three years to build the superhighway. By the end of Year 1, Entity TW's estimate of contract costs has increased to $15,800 million. In Year 2, DEF Company approves a variation resulting in an increase in contract revenue of $600 million and estimated additional contract costs of $560 million. At the end of Year 2, costs incurred include $300 million for standard materials stored at the site to be used in Year 3 to complete the project. Entity TW determines the stage of completion of the contract by calculating the proportion that contract costs incurred for work performed to date bear to the latest estimated total contract costs. A summary of the financial data during the construction period is as follows: OTE Year 1 Year 2 Year 3 $ million $ million $ million Initial amount of revenue agreed in contract 20,000 20,000 20,000 600 600 Variation . .. . . . . . . . . . . .. . . 20,000 20,600 20,600 Total contract revenue . . . . . ate 11,000 16,360 Contract costs incurred to date 5,800 10,000 5,360 Contract costs to complete . . . . ... . . . . . . . . enue 15,800 16,360 16,360 Total estimated contract costs . . . . . . f Year 4,240 240 4,200 e used Estimated profit ....... . . . . . . . . . . . . . . . .... crease in Required: million. ulating the a. Determine the stage of completion of the contract by the end of Years 1, 2 and 3. latest b. Determine the amounts of revenue, expenses and profit recognised in the statement of comprehensive nsive income for each of Years 1, 2 and 3 using the percentage of to complete completion method. C. Prepare journal entries to account for the contract revenues and expenses for Year 1. All its contract