Use the information below to answer the following questions:
On 1 January 2010, Romulus Ltd signed a contract worth $21 000 000 to construct a light rail from here to there. The light rail was to be built over 3 years, with progress payments of $7 000 000 to be made at the end of each year. Estimated costs were $15 000 000 and the following costs incurred and paid by Romulus Ltd were in accordance with estimates and represented the percentage completed in each year:
$\begin{array}{llcc}
& \text {\$ } \
\text {2010 } &\$ 8000000 \
\text { 2011 } &\$ 5000000 \
\text { 2012} &\$ 2000000 \
\text { } &\
\text { } &\
\end{array}$

The project was completed in December 2012.
-Using the percentage of completion method,what profit would Romulus Ltd report in 2012?
A) $7 000 000
B) $6 000 000
C) $800 000
D) $280 000.

Question

Use the information below to answer the following questions:
On 1 January 2010, Romulus Ltd signed a contract worth $21 000 000 to construct a light rail from here to there. The light rail was to be built over 3 years, with progress payments of $7 000 000 to be made at the end of each year. Estimated costs were $15 000 000 and the following costs incurred and paid by Romulus Ltd were in accordance with estimates and represented the percentage completed in each year:
$\begin{array}{llcc}
 & \text {\$  }   \
 \text {2010  } &\$ 8000000 \
 \text { 2011 } &\$ 5000000 \
 \text { 2012} &\$ 2000000 \
 \text {  } &\
 \text {  } &\
\end{array}$

The project was completed in December 2012.
-Using the percentage of completion method,what profit would Romulus Ltd report in 2012?
A) $7 000 000
B) $6 000 000
C) $800 000
D) $280 000.

Quizplus · Accepted Answer

To calculate the profit using percentage of completion method, we need to calculate the total estimated profit for the project and subtract the total incurred costs from it. 
Total estimated profit = $21 000 000 - $15 000 000 = $6 000 000 
To calculate profit for each year, we will use the percentage of costs incurred in each year as follows: 
Profit in 2010 = $8 000 000 / $15 000 000 x $6 000 000 = $3 200 000 
Profit in 2011 = $5 000 000 / $15 000 000 x $6 000 000 = $2 000 000 
Profit in 2012 = ($6 000 000 - ($3 200 000 + $2 000 000)) = $800 000 
Therefore, the profit Romulus Ltd would report in 2012 is $800 000, which is option C.

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