A contract is started on 1 January 2016, with an estimated completion date of 31 December 2017. The final contract price is $1,500,000.

In the first year, to 31 December 2016:

Costs incurred amounted to $600,000.

Half the work on the contract was completed.

Certificates of work completed have been issued, to the value of $750,000. (Note. It is usual, in a construction contract, for a qualified person such as an architect or engineer to inspect the work completed, and if it is satisfactory, to issue certificates. This will then be the notification to the customer that progress payments are now due to the contractor. Progress payments are commonly the amount of valuation on the work certificates issued, minus a precautionary retention of 10%).

It is estimated with reasonable certainty that further costs to completion in 2017 will be $600,000.

What is the contract profit in 2016, and what entries would be made for the contract at 31 December 2016 if:

(a) Profits are deferred until the completion of the contract?

(b) A proportion of the estimated revenue and profit is credited to the profit or loss in 2016?