On 1 January 2014,Peter Ltd signed a contract worth $64 000 000 to construct the Cycling Stadium.The stadium was to be built over three years,with progress payments as follows: Estimated costs were $50 000 000.The project was 35 per cent complete at the end of 2014,75 per cent complete at the end of 2015 and 100 per cent complete at the end of 2016.Revenues and costs were as estimated
-How much profit was earned during 2015 if the percentage of completion method was used?
A) $5 600 000
B) $4 375 000
C) $3 500 000
D) $10 500 000

Question

On 1 January 2014,Peter Ltd signed a contract worth $64 000 000 to construct the Cycling Stadium.The stadium was to be built over three years,with progress payments as follows:  Estimated costs were $50 000 000.The project was 35 per cent complete at the end of 2014,75 per cent complete at the end of 2015 and 100 per cent complete at the end of 2016.Revenues and costs were as estimated
-How much profit was earned during 2015 if the percentage of completion method was used?
A) $5 600 000 
B) $4 375 000 
C) $3 500 000 
D) $10 500 000

Quizplus · Accepted Answer

The percentage of completion method recognizes revenue and expenses as a percentage of the project's completion. In this case, the project was 75% complete in 2015, so the revenue recognized would be 75% of the total contract price, or $5,600,000. The expenses incurred would also be 75% of the total estimated costs, or $4,375,000. The profit earned would be the difference between the revenue and expenses, or $1,225,000.

On 1 January 2014,Peter Ltd Signed a Contract Worth $64