Question 1 Accounting for Construction Contracts 10 Marks XYZ Ltd signs a contract on 30 June 2015, agreeing to build a bridge for ABC Limited at a contract price of $40 million. XYZ Ltd estimates that construction costs will be as follows:
Year Ending Cost
30 June 2016 $10 000 000
30 June 2017 $16 000 000
30 June 2018 $ 6 000 000
$32 000 000
The contract provides that ABC will make payments on 30 June of each year as follows:
2016 - $8 000 000
2017 - $20 000 000
2018- $12 000 000
$40 000 000
XYZ now estimates at the beginning of the 2017 financial year that construction costs will be as follows:
Year Ending Cost
30 June 2016 $10 000 000
30 June 2017 $21 000 000
30 June 2018 $15 000 000
$46 000 000

Required:
Calculate:
a) Percentage of completion for each of the three years
b) Revenue to be recognised in each of the three years
c) Gross profit/loss to be recognised in each of the three years