Accounting for construction contract:Construct Pty Ltd uses the percentage of completion method of accounting for construction contracts. In 2011 Construct Pty Ltd entered into a contract to build a commercial building with a contract price of $4,200,000 for Kairns Ltd. The details relating to the contract are as follows:
2011 2012$ $
- Costs incurred during the year 300,000 2,750,000
- Estimated costs to complete at 30 June 2,400,000 0
- Billings during the year 720,000 3,480,000
- Collections during the year 500,000 3,200,000
Required:
(a) Calculate the amount of profit to be recognised by Construct Pty Ltd for the two years.
(b) Prepare the general journal entries for both years, assuming the outcome of the contract can be reliably estimated.