It says that under this method you apportion the cash receipt between cost recovered and profit using the ratio of profit to sales values. Therefore you recognise only a portion of the down payment. This is clear so far. What happens to the next payment. Do you recognize also only the same portion as for the down payment? If yes, when do you recognise the full profit? Andreas
wouldn’t what you recognize also depend on what you collect? Can you give an example?
It is also mentioned in the example that the rest of the payment will be received over 10 year period, so you would do the same procedure (profit/total sales = 45% ; profit to recognize = ($cash received)*45% to each payment received over time. It is basically based on applying pre-determined profit margin % to each payment received, recognizing the profit and cost of goods sold portions over time.