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Explain the following methods used in accounting for construction contracts i. Completed contract method ii. Percentage of completion method

      

Explain the following methods used in accounting for construction contracts
i. Completed contract method
ii. Percentage of completion method

  

Answers


Wilfred
1. Completed contract method
The Completed Contract Method (CCM) is where no profit is recognised when the contract is in progress; profit is only recognised when the contract is completed or substantially completed; i.e. only minor work (other than warranty work) is outstanding. Cost and progress payments are accumulated during the period of contract but revenue is not recognised up to contract completion. This is in compliance with the prudence concept whereby no profit is recognised unless there is certainty on its realisation.

2. Percentage of completion method
The PCM method allows for recognition of revenue as the contract progresses. This is in compliance with the matching concept. It allows the contractor to report profits in financial years during which the contract is incomplete but activity has been undertaken. The risk associated with this method relates to enormous estimation of future costs
Wilfykil answered the question on February 11, 2019 at 07:21


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