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If the contract is silent what method to be used percentage of completion or completed contract method?
Wiki User
∙ 14y ago
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.
Wiki User
∙ 14y ago
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Difference between Percentage of Completion method and Completed Contract method?
Difference between Percentage of Completion method and Completed Contract method?
When comparing the percentage of completion and completed contract method of accounting for long term construction contract both methods will report the same?
yes they will
What factors influence choosing percentage of completion and completed contract method methods of accounting for long term construction contract?
prepere all necessary and materials etc.
Are the percentage of completion and completed contract method methods of accounting for long term construction contract reporting the same amount of income in the year of completion?
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).
Why use Completed Contract Method?
The principal advantage of the completed-contract method is that
Long-term contractors are permitted to use the percentage of completion method for the purpose of revenue recognition and income determination. Consider why this method is not used by other companies?
This method is used for long-term projects when there is a contract, and reliable estimates of production completed, revenues and costs are possible.
When work to be done and costs to be incurred on a long-term contract can be estimated dependably what methods of revenue recognition is preferable?
percentage-of-completion method
How revenue is treated under long-term contract?
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
Is the Percentage-Of-Completion Method GAAP?
yes it is
What are some pros and cons of the completed contract method in accounting?
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.
What if the construction project which use percentage of completion method ended in the middle of accounting period?
What if what?Just like any other period, the percentage amount attributable to being completed in the period is recorded.
How is revenue in percentage of completion method computed?
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
