Completed Contract Method

How much and during which period must loss be recognized under the Completed Contract Method?

-the entire expected contract loss -in the current period

What is the Completed Contract Method? What occurs?

1. Companies recognize revenue and gross profit only at point of sale—that is, when the contract is completed 2. Companies accumulate costs of long-term contracts in process, but they make no interim charges or credits to income statement accounts for revenues, costs, or gross profit

Companies should use the Completed Contract Method when one of the following applies:

1. Company has primarily short-term contracts 2. Company cannot meet the conditions for using the percentage-of-completion method 3. There are inherent hazards in the contract beyond the normal, recurring business risks

How do companies recognize loss on an unprofitable contract under the Completed Contract Method?

1. Debit "Loss on Construction Contract" 2. Credit "Construction in Progress"

Completed Contract Method

Companies recognize revenue and gross profit only at point of sale—that is, when the contract is completed

When should loss be recognized under the Completed Contract Method? How much?

In the current period, the entire expected contract loss should be recognized.

What kind of loss calls for the use of the Completed Contract Method?

Loss on an *unprofitable* contract

Can the Completed Contract Method be used on a long-term contract that is *profitable*?

No, they can only use the Percentage-of-Completion Method.

If a contract started in 2010 and was completed in 2012, when should loss be recognized? Why?

Only 2012, because the contract was completed in 2012, meaning the point of sale was in 2012.

At what stage is the Completed Contract Method used?

Revenue recognition before delivery

Completed Contract: IFRS status

The Completed Contract Method is prohibited by the IFRS for long-term construction contracts

For what type of contract is the Completed Contract Method (and the Percentage-of-Completion) used?

long-term construction contracts