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LONG TERM CONSTRUCTION CONTRACT - PFRS 15: REVENUE FROM CONTRACTS WITH
CUSTOMERS
Use the following information for question 1

Trisha Corp. is constructing a building and has signed a total estimated cost of P10,414,020. It has
incurred the following cost relating to the contract by the end of first year
Costs of design and technical assistance that is directly related

to the contract P133,500
Costs of design and technical assistance that are not directly related
to the contract- (properly allocated) 25,500
Insurance costs during construction 12,400
Administrative costs expected to be reimbursed in accordance with
contractual agreement 80,000
Cost of negotiating the contract (charged immediately as expense) 87,500
Materials used in construction 2,494,485
Cost of materials purchased by not yet used in construction 490,000
Labor costs 800,000
Site supervision costs 150,000
Depreciation of equipment used in construction 80,000
Depreciation of idle equipment not used in the contract 67,891
Cost of moving plant, equipment and materials
to and from the contract site 35,668
Cost of hiring plant and equipment 186,555
Marketing 50,000
Borrowing cost 100,000
Incidental income from the sale of scrap materials 20,000
1. What is the percentage of completion?

A contractor enters into a contract to design and build an airport terminal. The contractor is
responsible for the design and overall management of the project build, including engineering, site
clearance, foundation, procurement, construction of terminal space, gates with loading bridges,
customs and immigration, airline office space, distribution systems required for its operations, and
installation of equipment and finishing.
2. How many distinct performance obligations are in the contract?
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Assume the same fact pattern as above, except the contract requires the contractor to procure
specialised equipment from a subcontractor and integrate the equipment into the airport terminal. The
contractor expects to transfer control of the equipment approximately one year from the contract
inception. The installation and integration of the equipment continue throughout the contract.
3. How many distinct performance obligations are in the contract?
Use the following information for questions 4-7

Assume the same fact pattern as Example 2 above and at contract inception the contractor
estimates the following: Contract price: P100 million Contract costs: P50 million Cost of the
specialised equipment: P20 million. During the first six months, the contractor incurs P45 million of
costs including specialized equipment.
4. Using input measure, what is the percentage of completion?
5. How much is the revenue upon transfer of control of the specialized equipment?
6. How much is the cost upon transfer of control of the specialized equipment?
7. How much is the realized gross profit at the end of the year?

A contractor enters into a contract to build both a road and a bridge (assume there are two
separate performance obligations: building the road and building the bridge). The contractor
determines at inception that the contract price is P151 million, which includes a P140 million fixed
price and an estimated P11 million award fee. The amount of the award fee is variable depending
on how early the contractor finishes the project. The contractor will receive a base award fee of
P10 million if it finishes the project 30 days ahead of schedule. The award fee increases
(decreases) by 10% for each day before (after) the 30 days it finishes the project. The contractor
has experience with similar contracts. The contractor uses the most likely amount to estimate the
variable consideration associated with the incentive bonus of P10 million. Based on the
contractor’s prior experience and its current estimates, the contractor determines that it will finish
the project 30 days ahead of schedule and be entitled to the P10 million award fee. The contractor
uses the expected value method to estimate the additional variable consideration associated with
the 10% daily penalty or incentive and determines it will be entitled to a 10% increase or P1 million.
The contractor concludes that it is highly probable that a change in estimate would not result in a
significant revenue reversal in the future.
8. How should the contractor allocate the contract price to the two separate
performance obligations?
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Assume the same fact pattern as Example 8 above, except that the amount of variable
consideration changes from an expected P11 million to an expected P13 million after contract
inception. The changes are due to improved weather conditions during the construction period
and therefore an expectation that the contractor will complete the entire project earlier than
expected.
9. How should the contractor allocate the change in the estimated contract price?
Use the following information for questions 10 and 11

Assume the same fact pattern as Example 9 above. Additional contract characteristics are: •
Contract duration is three years. • Total estimated contract revenue is P300 million. • Total
estimated contract cost is P200 million. • Year one cost is P120 million (including P20 million
related to contractor-caused inefficiencies). The contractor concludes that cost-to-cost is a
reasonable method for measuring the progress toward satisfying its performance obligation.
10. How much revenue should the contractor recognise during the first year?
11. How much cost should the contractor recognise during the first year?

Assume the same fact pattern as above, except that the total estimated cost to complete the contract
increases at the end of the second year to P250 million due to an increase in the cost of materials.
Actual cumulative costs incurred as of the end of the second year (excluding year-one inefficiencies)
is P200 million.
12. How much revenue and cost should the contractor recognise during the second year?
Use the following information for questions 13-15

Construction company IZZA signs a contract in June 2031 to refurbish a building and install new
windows. Total contract price is P 12 million.
Total expected contract costs are:
• P 6 mil. for windows (purchased from external suppliers);

• P 4 mil. for labor, materials and other costs related to the project.
As of 31 December 2031:
• IZZA handed over windows to the client, although the installation has not been completed.
However, the client obtained control of windows.
• Other costs incurred to 31 December were P 1 mil.
Just before the year-end, the client paid the first progress payment of P 8 mil. The company uses
input measure to recognize revenue.
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13. What is the percentage of completion?
14. How much is the total revenue at the end of 31 December 2031?
15. How much is the total contract revenue?
Use the following information for question 16-17

Construction Co enters into a contract with a customer to supply a new building. Control over the
completed building will pass to the customer in two years’ time (assuming the vendor’s performance
obligation will be satisfied at a point in time). The contract contains that the customer can pay P4
million on inception of the contract.
The customer decides to pay P4 million on inception. Construction Co’s incremental borrowing rate is
determined to be 6%.
16. How much is the total revenues when the performance obligation is satisfied?
17. How much is the total contract liability at the end of the second year?

On January 1, 2029, Storm Company accepted a long-term construction project for an initial contract
price of P3,500,000 to be completed on June 30, 2030. A mobilization fee of P300,000 is paid to
Storm Company on January 1, 2029 and this is to be charged against first billing. On January 1,
2030, the contract price was increased to P4,500,000 by reason of change in the design of the
project. The outcome of the construction contract can be estimated reliably. Storm bills the client
based on the work performed towards the completion. The company collects the billings at the end of
each year, net of 10 percent contract retention.
The entity provided the following data concerning the direct costs related to the said project for
2029 and 2030:
2029 2030
Costs during the year 1,320,000 2,040,000
Remaining estimated costs to complete at 1,980,000 840,000
year-end
18. What is the realized gross profit or loss for the year ended December 31, 2030?
19. What is the balance of construction in progress on December 31, 2030?
20. If the outcome cannot be estimated reliability, how much is the realized gross profit or
loss for the year ended December 31, 2030?
21. If the contract price for 2029 is P3,200,00 and the outcome can be estimated reliably,
how much is the construction in progress at end of Dec 31, 2029?
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22. If the contract price for 2029 is P3,200,00 and the outcome cannot be estimated reliably,
how much is the construction in progress at end of Dec 31, 2029?

On January 1, 2028, Psalm Company started the construction of a building at a fixed contract
price of P3,000,000. On the same date, the customer paid a mobilization fee equal to 5% of
contract price that will be deductible from the first billing. The outcome of construction contract
cannot be estimated reliably
During 2028, the entity billed the customer equivalent to 30% of the contract price. During 2029,
the entity billed again the customer amounting to 20% of the contract price. During 2030, the entity
billed again the customer amounting to 40% of the contract price. The remaining billing was made
at the year of completion of the project.
The entity made collection from the customer at the end of 2028, 2029 and 2030, in the amount
of P360,000, P1,350,000 and P540,000, respectively. The entity provided the following data
concerning the direct costs related to the said project:
2028 2029 2030

Cumulative costs incurred at year-end 1,080,000 2,400,000 2,610,000
Remaining estimated costs to complete at 2,520,000 750,000 150,000
year-end
23. What is the realized gross profit for the year ended December 31, 2029?
24. What is the excess of construction in progress over progress billings or excess of
progress billings over construction in progress on December 31, 2030?
25. What is the balance of accounts receivable on December 31, 2030?
26. Using percentage of completion, how much is the construction in progress at the end of
2028, 2029 and 2030?
-end-
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LONG TERM CONSTRUCTION CONTRACT - PFRS 15: REVENUE FROM CONTRACTS WITH

Use the following information for question 1

Costs of design and technical assistance that is directly related

1. What is the percentage of completion?

Use the following information for question 2

2. How many distinct performance obligations are in the contract?

3. How many distinct performance obligations are in the contract?

Use the following information for questions 4-7

4. Using input measure, what is the percentage of completion?

Use the following information for question 8

Use the following information for questions 10 and 11

Use the following information for question 12

Use the following information for questions 13-15

Total expected contract costs are:

• P 6 mil. for windows (purchased from external suppliers);

15. How much is the total contract revenue?

Use the following information for question 16-17

Use the following information for question 18-22

19. What is the balance of construction in progress on December 31, 2030?

Use the following information for question 23-26

2028 2029 2030

25. What is the balance of accounts receivable on December 31, 2030?

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