When do I have to use it? Installment => - collection of sales proceed unreliable; - Cost known Cost Recovery => - Cost are unknown OR collection of proceeds is unknown How do I differentiate both? Especially in case of known cost AND unreliable collection ?
just think of it as: the instalment method is similar to the percentage-of-completion method: costs are KNOWN, however, you can’t estimate the likelihood of collecting proceeds, and so profit is recognised in stages, as cash is recieved the cost recovery is similar to the completed contract method: costs are UNKNOWN, or collections of proceeds are also unknown, and so profit is not recognised until the end. so, if costs are known, but collection is unreliable, then installment method is used, as profit can be recognised as the cash does come in…
Ok. The costs are definitely unknown for cost recovery? I think the same. But Ihave problems with the sentence "CR ist used when the costs to provide goods or services are not known OR when there are uncertainties surrounding the collection..." I sounds to me that unknown costs isnt a general condition. Sometimes I have some problems with that language…
yeh you’re right… so, CR is used when: Costs are unknown, OR collection of proceeds is unknown, OR BOTH are UNKNOWN… so, if any of these occur, the safest thing to do would be to only recognise profits right at then end, once the sales process is complete