PRACTICAL QUESTION (29 marks)

Tiger Construction Ltd signs a contract on 1 May 2018 to build a theme park. The construction is scheduled to commence on 1 July 2018 and the estimated date of completion is 30 June 2021. The total contract price is $5m and the cost of the park is initially estimated at $4.5m. The following data relates to the construction period:

	For the year ended 30 June
	2019	2020	2021
	$	$	$
Costs to date	1,700,000	3,000,000	4,800,000
Estimated costs to complete	2,800,000	1,700,000	-
Progress billings to date	1,400,000	2,600,000	5,000,000
Cash received to date	1,200,000	2,200,000	5,000,000

Assume that cost (an input measure) is used as the basis for assessing progress on the construction contract.

Required

Determine the percentage of completion for 2019, 2020 and 2021. (6 marks)

	2019	2020	2021
	$	$	$
Costs to date (A)
Estimated costs to complete (B)
Estimated total cost (A+B=C)
Percent of completion (POC=A/C)

Calculate revenue and gross profit for 2019, 2020 and 2021. (14 marks)

			2019		2020		2021
			$		$		$
Contract Price
Contact Price x POC
LessRevenue recognised in previous years
= Revenue recognised for the year
Less Costs for the year
= Gross profit for the year

Using the percentage of completion method, provide the journal entries for 2019, 2020 and 2021. (9 marks)

			2019 $m	2020 $m	2021 $m
(i)	To record costs incurred:
(ii)	To record billings to customers:
(iii)	To record cash collections:
(iv)	To record periodic income recognised: