FAR 2 Flashcards
Under the completed contract method, revenue is recognized when?
The contract is complete, however expected losses are recognized immediately in their entirety.
How do you calculate expected losses in completed contract method?
Contract Price-Costs Incurred-Estimated Cost to Complete=Loss
How do you calculate gross profit using the percentage of completion method?
Contract price (Cost to date) (Estimated Costs to Complete) =Total Cost Expected Gross Profit x Percentage Complete =Profit to Date (Profit Previously Recognized) =Profit
When a company uses the percentage of completion method for a construction contract, what is used in the income calculation?
Income previously recognized would be used to calculate the income recognized in the second year but not progress billings to date.
Under the completed contract method, revenue is recognized
When the job is completed, not when the progress billing are collected or when they exceed recorded costs.
Under the percentage of completion method, revenue is recognized
Estimates of completion or “Costs incurred to date vs total estimated costs” is the basis for recognizing revenue, not progress billings.
IF an overall loss was anticiapted at contract completion, what would the effect of the project operating income under US GAAP percentage of ocmpletion method and completted contract method?
Decrease under both percetnage of completion and completted contract method, as the entire estimated loss is recorded for a loss contract in progress (not only the loss incurred to date)
Under the percentage of completion method, annual gross profit equals?
Total Cost Incurred
/ Total Expected Cost
x (Total expected gross profit)
=Annual Gross Profit
In the final year of contract, actual rather than expected amounts are used.
How do you calculated gross profit under the completed contract method?
Total Contract Sales Price
Less: Total Cost of Contract
=Gross profit recognized when contract is completed
How do you calculate the gross profit percentage for percentage of completion method?
Actual Cost incurred to date / Total Estimated Cost of Contract
When will you record an asset for percentage of completion method?
The excess of accumulated costs plus estimated earnings is over related billings.
When will you record a liability for percentage of completion method?
The excess of related billings over accumulated costs plus estimated earnings.
