Question 4 [10 marks]

Accounting for construction contracts

Yellow Pty Ltd uses the percentage of completion method of accounting for construction contracts. In 2011 Yellow Pty Ltd entered into a contract to build a stadium with a contract price of $40,000,000 for Black Ltd. The details relating to the contract are as follows:

2011 2012 2013

$ $ $

Costs incurred during the year 10,000,00 21,000,000 15,000,000

Estimated costs to complete at 30 June 22,000,000 15,000,000 0

Billings during the year 8,000,00 20,000,000 12,000,000

Collections during the year 8,000,000 20,000,000 12,000,000

Yellow Pty Ltd has a financial year ending on 30 June.


(a) Calculate the amount of profit to be recognised by Yellow Pty Ltd for each of the three years.

(b) Prepare journal entries for all three years, assuming that the outcome of the contract can be reliably estimated.

Note: round all figures to the nearest dollar, and leave all percentages with two decimal places.