Get premium membership and access questions with answers, video lessons as well as revision papers.

Explain two methods of accounting for construction contracts.

      

Explain two methods of accounting for construction contracts.

  

Answers


Wilfred
1. Percentage on completion method
According to this method, revenue is recognized on the basis of completion at the end of accounting period i.e. based on percentage of completion. Determination of percentage of completion can be done as follows:-
perc111220191020.png

2. Under this method, revenue and profits are recognized when the contract is completed or substantially completed i.e. when remaining costs and potential risks are insignificant in amount. Costs and progress payments received are accumulated during the course of the contracts but profit is not recognized until the contract activity is substantially completed.
It’s appropriate for financial accounting only if:
a. A contractor has primarily short-term contract which are completed in one year or less.
b. If estimates of input/ output measures of completion are not reasonably dependable.
Wilfykil answered the question on February 11, 2019 at 06:24


Next: newa11122019953.png newa21122019955.png
Previous: Explain the disclosure requirements for contracts in progress at the end of the reporting period in accordance with International Accounting Standard (IAS) 11, Construction Contracts.

View More CPA Financial Reporting Questions and Answers | Return to Questions Index


Learn High School English on YouTube

Related Questions