page 2 Question 1 Zozo Constuction entered into a contract with Leroy Corporatio
ID: 2429536 • Letter: P
Question
page 2 Question 1 Zozo Constuction entered into a contract with Leroy Corporation to constuct a building on 01 January 2016. The total contract price for construction of the building is $9,000,000. During the year 2016 Zozo Construction incurred $2,000,000 in construction cost related to the project. The estimated cost to complete the contract as at 31 December 2016 is $6,000,000. Leroy Corporation was billed $2,500,000 for the year 2016. equired: (1) Using the percentage of completion method, what is the profit or loss to be recognized by Zozo (2) Using the cost recovery method, what is the profit or loss to be recognized by Zozo construction for the (3) Using the percentage of completion method, what is the amount to be shown as "costs and recognized Construction for the year 2016? (3 MARKS) year 2016? 2 MARKS) profit on uncompleted contract in excess of billings" or "billings on uncompleted contract in excess of related cost and recognized profit" at December 31 2016 by Zozo Construction? (3 MARKS) (4) Using the cost recovery method, what is the amount to be shown as "costs and recognized profit on uncompleted contract in excess of related billings" or "billings on uncompleted contract in excess of related cost and recognized profit" at December 31 2016 by Zozo Construction? (2 MARKS) (10 MARKS)Explanation / Answer
1. Total cost incurred = $ 2 mn
Cost to be incured = $ 6 mn
Total cost = $ 8 mn
In this way, zozo have completed 2/8 = 25% of the work. Accordingly revenue would also be 25% of $ 9000000 = $ 2250000. Thus profit to be recognized would be $ 2250000 - $ 2000000 = $ 250000
2. According to recovery method, profit would be amount recovered minus amount incurred. That is $ 2500000 - $ 2000000 = $ 5000000
3. Billings on uncompleted contract in excess of related cost and recognized profit would be $ 2500000 - $ 225000 = $ 250000
4. Cost and recognized profit on uncpmpleted contract in excess of related billings = $ 2500000 - $ 200000 = $ 500000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.