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Topic: Construction Contract

Case 3: On January 2. 20x0 Visaya Corporation enters into a contract with a customer for the construction of building. The contract price is P30,000,000. The parties also agreed that, when the building is complete, it will be inspected and assigned a green building certication level. If the building achieves the certication level specied In the contract, Visaya will be entitled to an incentive payment of P2,500,000. Visaya uses the percentage of completion method in measuring its progress on the contract. At contract inception, the entity cannot conclude that it is highly probable that it is highly probable that a signicant reversal In the amount of cumulative revenue recognized will not occur with respect to the inclusion of the incentive payment to contract price due to bad weather conditions, it does not expect that it can nish the building on time for it to be entitled to the Incentive payments. The estimated costs to complete in year 20x0 aer P12,000,000. As of December 31, 20x0, it incurs total costs of P6950300. In 20x1, it incurs total costs of P11,300,000. Due to good weather conditions, it now expects that it can nish the building on time for it to be entitled to the incentive payments. It expects that it is highly probable that a signicant reversal in the amount of cumulative revenue recognize will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The estimated costs to complete as of the end of 20x1 are P950,000. Required: 1. What is the total realized gross profit in year 20x0? a. P0 b. P11,250,000 c. P3,375,000 d. P4,050,000 2. What is the total realized gross prot in year 20x1? a. P8375300 b. P16,875,000 c. P12,825,000 d. P13,500,000 Case 4: On January 1, 20x0, Cathy Corporation was contracted to build a pool for P2,000,000. In 20x1, the design of the pool was modied. As a resultIr the initial contract price has increased to P2,500,000. The construction was started in 20x0 and was completed in year 20x2. Cathy uses percentage of completion method in measuring the progress of the construction. In 20x2, the cost incurred Included costs of variations in contract work amounting to P20,000. These costs were due to customer's fault and it is being currently disputed by Cathy. The negotiation with the customer has set and it is probable that the customer will accept the dalm for the P20,000 reimbursement. Cathy assessed that it has an enforceable right over the claim. The claim is expected to be received upon completion of the contract. The followin information on the construction is as follows: mEEl Estimated cost to corn lete P2 one one P800 ooo _ 400 000 800 000 1 zoo poo Required: 1. What is the realized gross prot or loss in year 20x1? a. P100,000 b. (P100,000) c. P300,000 d. P700,000 2. What is the realized gross prot or loss in year 20x2? a. P120,000 b. P820,000 c. (P180300) d. (P580,000) 3. What is the amount of construction in progress in year 20x0, using the percentage of completion method? a. P400,000 b. (P800,000) c. P800,000 d. (P400,000) 4. What is the total amount of (ZIP in year 20x1, using zero prot method? a. P1,200,000 b. P1,000,000 c. P400300 d. P800300 5. What is the realized gross prot (loss) using zero prot method in year 20x1? a. P0 b. (P800,000) c. P400,000 d. P1,100,000 6. What is the amount of Constmction in Progress in year 20x1, using the percentage of completion method? a. P1,200,000 b. P2,140,000 c. P2,300,000 d. P1,500,000