HELLO! PLEASE TELL ME IF I DID THIS ONE CORRECTLY. IF NOT, PLEASE HELP ME SOLVE IT. THANK YOU!
On January 1, 2016, CHACHA, entered into a contract to construct a subdivision on a piece of land it has acquired.The following information pertains to the said contract each customer is to sign.
Each house costs P4,000,000 each (a total of 10 houses are to be constructed), Construction will take 2 years to complete.
Payment terms are 50% by the end of the 1st year, 25% at the end of the 2 year and the balance will be paid after 3 months from the final turn-over.
The client can transfer the contract to another, should they not feel satisfied with the house on or before the house is 50% complete.
The company incurred the following expenses for 20x6,
Total cost of land ~ P2M;
Estimated total cost of construction ~ P25M, (including the costs for the common areas, streets and light posts amounting to P5M);
Estimated total cost of contract for the 10 houses ~ P40M;
In 2016, total construction cost incurred amount to P13M with all common areas already fully constructed, while fair value of the land is now worth P3.5M. The contract is considered to be a multiple contract.
The amount of revenue to be recorded for the year by CHACHA is:
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My Solution:
Total Construction Cost Incurred P13,000,000
/ by: Estimated Total Cost of Constuction 25,000,000
= Percentage of Completion 52%
Contact Price (4,000,000 * 10 houses) P40,000,000
* by: Percentage of Completion 52%
= Revenue to date P20,800,000
+ Revaluation of land (3.5M-2M) 1,500,000
- Construction Cost Incurred 13,000,000
= Revenue for the year
P 9,300,000