Hello
One percentage of completion question, not revenue recognition but profit recognition.
[question removed by moderator]
I don’t understand why we cannot simply use the method normally used for revenue recognition: (periodic cost/total cost)* total estimated profit.
Because the way they estimate percentage of completion is different. Instead of using cost to date over total cost, they use cost to date over estimated total cost.
Year 1: 3,117,500/7,250,000 = 43%
Year 2: 3,117,500 + 2,582,500 / 7.600,000 = 75%
So between year 1 and year 2, 32% more in cost was incurred. 32% * 10,000,000 = 3,200,000.
Profit: 3,200,000 - 2,582,500 = 617,500