Revenue from Contracts with Customers

Question 1

This is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design technology and function or their ultimate purpose or use.

Answer 1

Construction Contract

Question 2

What are the three types of construction contracts?

Answer 2

1. Fixed Price Contract
2. Cost-plus Contract
3. Construction Contract with Variation

Question 3

What is the cost escalation clause?

Answer 3

An extra provision that the contractor would provide wherein the increase of construction cost will increase the contract price.

Question 4

How do you calculate for the cost-plus contract?

Answer 4

Construction Cost + Profit

Question 5

How do you measure the fixed price contract?

Answer 5

Initial Fixed Price + Cost escalation clause

Question 6

What is the construction contract with variation?

Answer 6

This is a construction contract wherein there are changes na pwedeng gumanap.

Question 7

This is the total amount of consideration receivable under the construction contract.

Answer 7

Construction Revenue

Question 8

TRUE OR FALSE:

When there is no contract, there is no revenue.

Answer 8

True

Question 9

Construction Revenue comprises of what?

Answer 9

1. Initial Amount of Revenue
2. Variations

Variations: Change orders, penalties, incentives.

Question 10

What are three most common types of variations?

Answer 10

1. Change Orders
2. Penalties - from delay
3. Incentives - from early completion

Question 11

These are the expenses that the contractor incurs.

Answer 11

Construction Costs

Question 12

What do the construction costs comprise of?

Answer 12

1. Costs that relate directly to the specific contract
2. Costs attributable and allocatable
3. Costs chargeable to the customer

Question 13

What are the exclusions from construction costs?

Answer 13

1. General Admin Costs
2. RnD Costs
3. Depreciation of PPE not used on any contract
4. Cost of wasted materials, labor, or other resources

(unless reimbursement is specified in contract)

Question 14

How do you know if the outcome of the contract can be reasonably estimated?

Answer 14

If the contractor has prior experience on working on similar projects.

Question 15

How do you know if the outcome of the contract can’t be reasonably estimated?

Answer 15

If the contractor has no prior experience on similar experience.

Question 16

What method do you use if the construction contract can be reasonably estimated?

Answer 16

Percentage of completion method

Question 17

What method do you use if the construction contract can’t be reasonably estimated?

Answer 17

Zero Profit Method

Question 18

What are the two methods of measuring progress under the percentage of completion method?

Answer 18

1. Output Method
2. Input Method

Question 19

When it comes to the input method of the percentage of the completion method, how do you solve for the percentage of completion?

Answer 19

Cumulative Costs Incurred to Date
Divide: Est. Total Construction Costs
————————————
Percentage of Completion

Prior period construction costs
Add: Current period construction costs incurred
—————————————–
Cumulative Construction Costs incurred to date

Construction costs incurred to date
Estimated costs to complete
———————————-
Est. total construction costs

Question 20

What are contract retentions?

Answer 20

These are the cash being withheld by the customer just as an insurance or security purposes para tapusin nung contractor yung project.

Question 21

How do you solve for Contract Asset (Liability) in LTCC?

Answer 21

CIP
Less: Progress Billings
————————-
Contract Asset (Liability)

Progress Billings are cumulative

Question 22

How do you solve for CIP?

Answer 22

CIP, beg
Cost incurred
Add: RGP
Less: RGL
—————
CIP, end