ABC Co. a private contractor, wins a bid to construct a railway for the government. The terms of the arrangement are as follows: Construct a road- completing construction within a year; Maintain and operate the road for four years. Resurface the road when the original surface has deteriorated below specified condition. The operator estimates that it will have to undertake the resurfacing at the end of year 3. The operator collects toll fees of P200,000 per year. The contract ends in year 5. The operator estimates that the resurfacing expenditure increases by P5,000 for each year that the road is used. The appropriate discount rate is 10%. At contract inception, ABC Co. identifies a single performance obligation for construction services. ABC Co. makes the following estimates: YEAR CONTRACT COST STAND ALONE SELLING PRICE CONSTRUCTION SERVICE 1 200,000 FORECAST COST + 25% OPERATION SERVICE 2-5 15,000 N/A ROAD RESURFACE 3 10,000 N/A At the start of year 1, ABC Co. obtains a 4-year, 10%, P200,000 bank loan to help finance the arrangement. The principal and interest on the loan matures in lump sum. Compute for the net income for year 3
ABC Co. a private contractor, wins a bid to construct a railway for the government. The terms of the arrangement are as follows: Construct a road- completing construction within a year; Maintain and operate the road for four years. Resurface the road when the original surface has deteriorated below specified condition. The operator estimates that it will have to undertake the resurfacing at the end of year 3. The operator collects toll fees of P200,000 per year. The contract ends in year 5. The operator estimates that the resurfacing expenditure increases by P5,000 for each year that the road is used. The appropriate discount rate is 10%. At contract inception, ABC Co. identifies a single performance obligation for construction services. ABC Co. makes the following estimates: YEAR CONTRACT COST STAND ALONE SELLING PRICE CONSTRUCTION SERVICE 1 200,000 FORECAST COST + 25% OPERATION SERVICE 2-5 15,000 N/A ROAD RESURFACE 3 10,000 N/A At the start of year 1, ABC Co. obtains a 4-year, 10%, P200,000 bank loan to help finance the arrangement. The principal and interest on the loan matures in lump sum. Compute for the net income for year 3
Chapter3: Income Sources
Section: Chapter Questions
Problem 88P
Related questions
Question
ABC Co. a private contractor, wins a bid to construct a railway for the government. The terms of the arrangement are as follows:
- Construct a road- completing construction within a year;
- Maintain and operate the road for four years.
- Resurface the road when the original surface has deteriorated below specified condition. The operator estimates that it will have to undertake the resurfacing at the end of year 3.
The operator collects toll fees of P200,000 per year. The contract ends in year 5. The operator estimates that the resurfacing expenditure increases by P5,000 for each year that the road is used. The appropriate discount rate is 10%. At contract inception, ABC Co. identifies a single performance obligation for construction services. ABC Co. makes the following estimates:
| YEAR | CONTRACT COST | STAND ALONE SELLING PRICE | |
| CONSTRUCTION SERVICE | 1 | 200,000 | |
| OPERATION SERVICE | 2-5 | 15,000 | N/A |
| ROAD RESURFACE | 3 | 10,000 | N/A |
At the start of year 1, ABC Co. obtains a 4-year, 10%, P200,000 bank loan to help finance the arrangement. The principal and interest on the loan matures in lump sum. Compute for the net income for year 3.
Present solutions in good accounting form. Thanks, tutor!
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you