Give examples for the percentage of completion method

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Let us consider two examples for the percentage of completion method.

Calculate by using percentage of completion method, if estimated cost of project is $700000 and costs to date are$85000, total revenue estimated = $2000000). Solution The solution is as follows − • Step 1 Percentage of completion = costs to date / estimated cost of project = 85000/700000 ⇒ 12.14 % (rounded to two digits) • Step 2 Revenue recognition = percentage of completion * total revenue estimated = 12.14% * 2000000 ⇒$ 242800

• Step 3

Income recognition = recognized revenue – costs to date

= 242800 – 85000 ⇒ $157800 Example 2 A construction is building a maintenance facility and the estimated cost for the project was$3000000 and he billed the customer for $3250000. Estimated gross margin of 20% Solution The solution is as follows − Total expenses = estimated cost / (1- gross margin) = 3000000 / (1 – 20%) ⇒$3750000

Here, we can clearly see that the above amount is higher than the billed amount. So company gets additional revenue of \$500000

The journal entry for the above data is as follows −

ParticularsDebitCredit
Unbilled contract receivables
500000

Contract revenue earned

500000

Revenue recognized (offset) = additional contract revenue * (1-gross margin)

Published on 07-Jul-2021 13:55:47