Question

2. Bacha construction company contracted to build a municipal warehouse for the city of Adama for BR 5,200,000. The construction began on February 2,2008 and completed in 2010 the company uses percentage of accounting records of the company in relation to this contract : 2008 2009 2010 Total estimated cost of the contract br 4,000,000 br4,160,000 br4,200,000 Cumulative gross profit recognized 330,000 700,000 ? Instruction (a) Compute the construction costs incurred in each of the year 2008,2009,& 2010. (b) Compute the contract revenue and gross profit recognized in each of the year 2008,2009, 2010​

Answer 1

To compute construction costs, total contract revenue, and gross profit for Bacha Construction Company, the changes in the estimated costs across years and the cumulative gross profit recognized would be analyzed. However, exact amounts require additional details about the percentages of work completed in each period.

Step-by-step explanation:

Calculating Construction Costs and Profits

To calculate the construction costs incurred each year by Bacha Construction Company and the corresponding contract revenue and gross profit recognized for each year, we use the percentage of completion method. Here is the breakdown:

• 2008: Total estimated cost = BR 4,000,000, Cumulative gross profit recognized = BR 330,000.
• 2009: Total estimated cost = BR 4,160,000, Cumulative gross profit recognized = BR 700,000.
• 2010: Total estimated cost = BR 4,200,000. The cumulative gross profit for this year would be the contract price minus the final total estimated cost, which is BR 5,200,000 - BR 4,200,000 = BR 1,000,000.

For each year, the cost incurred would typically be the difference in the estimated costs provided at the end of that year and the one provided at the end of the previous year. Similarly, contract revenue and gross profit recognized would be calculated proportionally based on the work completed each year.

Note: To provide an exact answer, the exact percentage of work completed each year and the cost incurred for 2008 and 2009 would be needed, which are not supplied in this question.

A similar example: The accounting profit calculation for a different firm with known costs and revenue is as follows: Accounting profit = total revenues minus explicit costs = $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000.

Answer 2

Step-by-step explanation:

(a) To compute the construction costs incurred in each of the years 2008, 2009, and 2010, we need to subtract the cumulative gross profit recognized from the total estimated cost of the contract for each year.

In 2008:

Construction costs incurred = Total estimated cost of the contract - Cumulative gross profit recognized in 2008

= BR 4,000,000 - BR 330,000

= BR 3,670,000

In 2009:

Construction costs incurred = Total estimated cost of the contract - Cumulative gross profit recognized in 2009

= BR 4,160,000 - BR 700,000

= BR 3,460,000

In 2010:

Construction costs incurred = Total estimated cost of the contract - Cumulative gross profit recognized in 2010

= BR 4,200,000 - (BR 330,000 + BR 700,000)

= BR 3,170,000

(b) To compute the contract revenue and gross profit recognized in each of the years 2008, 2009, and 2010, we need to add the cumulative gross profit recognized to the construction costs incurred in each year.

In 2008:

Contract revenue = Construction costs incurred in 2008 + Cumulative gross profit recognized in 2008

= BR 3,670,000 + BR 330,000

= BR 4,000,000

Gross profit recognized = Cumulative gross profit recognized in 2008

= BR 330,000

In 2009:

Contract revenue = Construction costs incurred in 2009 + Cumulative gross profit recognized in 2009

= BR 3,460,000 + BR 700,000

= BR 4,160,000

Gross profit recognized = Cumulative gross profit recognized in 2009

= BR 700,000

In 2010:

Contract revenue = Construction costs incurred in 2010 + Cumulative gross profit recognized in 2010

= BR 3,170,000 + (BR 330,000 + BR 700,000)

= BR 4,200,000

Gross profit recognized = Cumulative gross profit recognized in 2010

= BR 330,000 + BR 700,000

= BR 1,030,000