Calculate the total revenue, Cost Accounting

Mandy Building Contractors Ltd signed a fixed-price contract to build a bridge for Nelly Ltd for $110 million on 1 July 2012.  Contract costs are estimated as follows:

Year ending 30 June



25 000 000


40 000 000


35 000 000


100 000 000


Contract billings sent to Nelly Ltd each year are as follows:

Year ending 30 June



20 000 000


35 000 000


55 000 000


110 000 000


Additional Information

(i)   Actual costs incurred each year coincide with expectations for each year.

(ii)  Cash collected each year from Nelly Ltd coincides with billings each year.


(i) Assuming Mandy Building Contractors Ltd adopts the percentage-of-completion method (cost basis) in accordance with AASB 111 (outcome of the contract can be reliably estimated):

(a) Determine the percentage of completion for each of the three years and calculate the profit (loss) to be recognised for the year ending 30 June 2013 and 2014.

(b)      Calculate the total revenue to be brought to account for each of the three years.

(c)      Prepare the journal entry to record revenue only for the year ending 30 June 2014.

(ii)      Assuming the outcome of the contract cannot be reliably estimated:

(a)     How much profit (loss) (if any) should be brought to account for each of the three years?  Explain.

(b)     Determine the total revenue to be brought to account for each accounting period.  Explain.

(iii)     Assume that actual costs incurred for the year ending 30 June 2014 amounted to a total of $50 000 000 and that estimated costs for the year ending 30 June 2015 remained at a total of $35 000 000.  Determine how much profit (loss) is to be brought to account for the year ending 30 June 2014.  Explain your rationale.

Posted Date: 3/30/2013 6:21:24 AM | Location : United States

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