Reference no: EM132753538

On January 2, 2020, Peter Realty enters into a contract with a customer for the construction of building. The contract price is P30,000,000. The parties also agreed that, when the building is complete, it will be inspected and assigned a green building certification level. If the building achieves the certification level specified in the contract, Peter Realty will be entitled to an incentive payment of P2,500,000. Parker uses the percentage of completion method in measuring its progress in the contract.

• At contract inception, the entity cannot conclude that is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur with respect to the inclusion of the incentive payment to contract price due to bad weather conditions, it does not expect that it can finish the building on time for it to be entitled to the incentive payments. The estimated costs to complete in year 2020 are P12,000,000. As of December 31, 2020, it incurs total costs of P6,750,000.
• In 2021, it incurs total costs of P11,300,000. Due to good weather conditions, it now expects that it can finish the building on time for it to be entitled to the incentive payments. It expects that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The estimated costs to complete. as of the end of 2020 are P950,000.

Problem 1: The total realized gross profit in year 2020 was:

Choices

a. P-0-

b. P11,250,000

c. P3,375,000

d. P4,050,000