MEMO

To: Accounting Team

From: Finance Director

Re: Gross Profit Percentage of Completion Method

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The company entered into a contract on 1 July 2019 with Brisbane City Council for the construction of a tunnel under the Brisbane River to improve public transport. The contract is a fixed priced contract for total revenues of $40 million.

The expected completion is 30 June 2023. The expected total cost to complete the contract is $25 million. As at 30 June 2021 costs are consistent with expectations.

The construction management system has produced the following information with regard to the contract for the year ended 30 June 2021:

• Costs for the year are $5,000,000
• Costs incurred to date on the contract are $10,000,000
• Progress billings during the year $10,000,000
• Cash collected during the year $9,000,000

Required:

In your opinion, how should the Company recognise revenue associated with the contract with Brisbane City Council? Briefly justify your opinion and calculate the gross profit (if any) to be recognised in relation to the contract for the year ending 30 June 2021. (Show all workings / calculations. No Journal Entries Required).