Reference no: EM132597474

Question - The local government assigned MOC, a private contractor a bid to construct road on January 1, 20x1. The terms of the arrangement area as follows: The project shall be constructed within 2 years and MOC shall operate and maintain the airport for 6 years, following the completion of construction. In exchange for MOC's services, the government promises to pay MOC P150M every December 31 in years 3 to 8. At the end of the 8th year, MOC shall transfer the airport to the government. At inception of contract, MOC identifies two performance obligations in the contract - construction services and operation services. The operator estimates the stand-alone costs of these services are as follows: Construction services, P300M; Operating services: P100M. MOC charges a 25% gross profit for all costs incurred. The imputed interest on the above contract is 10%. To finance the project, MOC enters into a P200M loan on January 1, 20x1 and Jan 1 20x2, at an imputed interest of 9% with payments of P59,300 each year to start on December 31, 20x3. The project is 60% complete by the end of year 1. Determine the construction cost in year 1.