[FuturePAcpa]

I’m using becker — I just do not understand the percentage of completion method. I realize I may only get one question on this but for my own sanity can someone explain this to me. I can answer the MCQ correct about the theory. but the MCQ that throw in numbers I can’t figure out… even once i see the answer. There are like 3 questions with numbers and none of them seem to be the same approach/formula.

I bought the ninja notes and this isn’t even mentioned in them. Sooo, is it really not that important that I figure this out?

BEC - 7/25/11 (74)
FAR - 10/10/11

[anonymous]

If you tell us what questions you're talking about, it would be easier to explain. It might just be a trick or exception in the specific questions you are looking at.

REG -- October 3!!
FAR -- Pass
BEC -- Pass
AUD -- Pass

[Anonymous]

You take the costs incurred to date divided by total estimated cost of the project. This gives you an indication of how far along you are with the project (% complete). Multiply this % by either Revenue or Gross Profit to determine how much you should recognize to-date. Since this amount is “to-date”, you have to subtract out any Revenue or Gross Profit (depending on which one you're calculating) you've already recognized in the previous years to arrive at how much you should recognize this year. Is there a particlar question you need help with?

[jimboace88]

Percentage of completion is really based upon the costs you have incurred to date in relation to your “estimated costs to complete.”

If you take the following fraction:

Total costs incurred to date

____________________________________

Estimated costs to completion

You get your PERCENTAGE of completion.

Multiply this percentage of completion by the gross profit on the contract and you will have your percentage of gross profit to be recognized.

It becomes a little more complicated after the first year. After year one, you need to deduct out previously recognized profit in order to determine what amount of gross profit you should recognize.

Keep in mind also that if there is a cost overrun, you may end up with a loss–construction is one of those narrow profit margin industries that often has this problem. Also make sure you read the question carefully because they could be asking for COMPLETED CONTRACT method, which is much simpler (obviously). In any event, if you have a loss you will recognize the entire amount of the loss immediately as is dictated by the rule of conservatism.

I realize my response isn't incredibly detailed, but those are most of the fundamental points behind percentage of completion. I don't think it's an area that you should completely blow off–try to get the calculation down. I recommend reading the examples in the Becker text and working through them; I found that to be the most effective method for understanding this particular concept.

FAR 07/27/11 - 87
AUD 10/01/11 - 85
BEC 11/15/11 - 87
REG 01/03/12 - 92

[Author]

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