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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
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
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
Why use Completed Contract Method?
The principal advantage of the completed-contract method is that
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.
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).
If the contract is silent what method to be used percentage of completion or completed contract method?
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.
What do the completed contract method of accounting for long term contract use for?
The completed contract method of accounting is used for long-term contracts to recognize revenue and expenses only when the contract is fully completed. This approach is beneficial for projects where it is difficult to estimate the percentage of completion or when the outcome is uncertain. It provides a clear view of profitability at the conclusion of the project, as all costs and revenues are recorded at once, avoiding potential distortions in financial statements during the contract's duration. However, this method can lead to significant fluctuations in reported income, as revenue is recognized only at the end of the contract.
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
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
What is the difference between goods ans service contract?
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.
What exactly is a statutory holdback?
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.
What is a completion bond?
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.
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.
What is the Difference between short and long term contract?
A short term contract is any contract that is started and completed within a fiscal year. A long-term contract is any contract that is started in a fiscal year and is completed in another fiscal year. For instance. If the taxpayer has a December 31 year end and a contract is started on December 24th and completed on January 3rd, this is deemed a long-term contract even though the duration of the contract was only 10 days.
