Difference between Percentage of Completion method and Completed Contract method?
Revenue is calculated as per percentage of completion method in long term contracts like construction contracts as first of all total cost and revenue is determined and after that it is allocated to specific fiscal year according to the percentage of completion of contract or project
Revenue is calculated as a percent of the total contract revenue according to the percent of completion. The percent of completion as calculated as the incurred costs up to the end of the reporting period to the total estimated cost for the contract. Simply it is : Incurred costs up to date ــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ X Total Contract Revenue Total Estimated cost
percentage-of-completion method
The principal advantage of the completed-contract method is that
A con of the completed contract method of accounting is that nothing is noted in the ledger until the contract is completed. A pro is that there will be less paperwork in accepting partial payments.
yes they will
prepere all necessary and materials etc.
At the end of the contract the same amount will have been recognized under both methods for the entire period of the contract. However, the final year of the contract will not usually be the same under both methods. In other words, if a contract spans 2 years, the percentage completion will pick up part of the income in year one and part in year 2. The combined total picked up in both years under percentage completion will be the amount reported under completed contract in year 2 (nothing will be picked up in year 1).
As the percentage of completion method requires definite receipts but estimated costs so this method is not advisable when receipts of contract are not given. In this scenario there generally appears no contract so it must be the case of a builder who intends to sell the constructed completed project after incurring self costs. In such situations the completion method suits the best.In case the project has been finalised with fixedcontract price and the contractor has his own estimated costs or else the contractor/ builder has entered into contract with various parties ( the prospective buyers) , in advance( before commencing the project/ billing etc.,), with sure receipts then the percentage of completion method is better to be adopted.
Revenue is calculated as per percentage of completion method in long term contracts like construction contracts as first of all total cost and revenue is determined and after that it is allocated to specific fiscal year according to the percentage of completion of contract or project
Revenue is calculated as a percent of the total contract revenue according to the percent of completion. The percent of completion as calculated as the incurred costs up to the end of the reporting period to the total estimated cost for the contract. Simply it is : Incurred costs up to date ــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ X Total Contract Revenue Total Estimated cost
A statutory holdback arises when someone employs a contractor to do some work. A percentage of the agreed contract amount is held back for a period of perhaps 45 days after completion to ensure all parties are satisfied with the work before payment is completed.
A contract for goods is about purchasing tangible items, such as apples. A contract for a services is about contracting for a service to be completed, such as tax preparation.
Completion bond is a financial contract that insures a given project will be completed even if the producer runs out of money, or any measure of financial or other impediment occurs during the production of the project. Basically completion bonds are used in construction projects and films industry.
This method is used for long-term projects when there is a contract, and reliable estimates of production completed, revenues and costs are possible.
percentage-of-completion method
Document certified by an architect and/or an engineer that a certain construction project has been completed in accordance with the terms, conditions, and specifications contained in the job contract.