How Much Profit Will XYZ Ltd Make from Building a Bridge for ABC Limited?

What are the construction costs estimated by XYZ Ltd for each year?

XYZ Ltd estimates construction costs to be $10,000,000 for the year ending 30 June 2016, $16,000,000 for the year ending 30 June 2017, and $6,000,000 for the year ending 30 June 2018.

Percentage of Completion

In 2016: 25% ($8,000,000 / $32,000,000)
In 2017: 50% ($20,000,000 / $40,000,000)
In 2018: 30% ($12,000,000 / $40,000,000)

Revenue Recognition

In 2016: $10,000,000 (25% of $40,000,000)
In 2017: $20,000,000 (50% of $40,000,000)
In 2018: $12,000,000 (30% of $40,000,000)

Gross Profit/Loss

In 2016: $2,000,000 ($10,000,000 - $8,000,000)
In 2017: $4,000,000 ($16,000,000 - $20,000,000)
In 2018: $6,000,000 ($6,000,000 - $12,000,000)

XYZ Ltd has estimated construction costs for building the bridge for ABC Limited over a period of three years. The estimated costs for each year have been provided along with the payments expected from ABC Limited.

From the provided data, we can calculate the percentage of completion for each year, the revenue to be recognized in each year, and the gross profit or loss for each year. The calculations have been done as follows:

Percentage of Completion: The percentage of completion is calculated by dividing the payments received by ABC Limited in each year by the total construction costs estimated by XYZ Ltd for that year.

Revenue Recognition: The revenue to be recognized in each year is calculated based on the percentage of completion. It represents the percentage of the total contract price that corresponds to the work completed in that year.

Gross Profit/Loss: The gross profit or loss for each year is calculated as the the revenue recognized minus the construction costs estimated by XYZ Ltd for that year.