Quick Percentage of Completion Q

3 year contract for £2,500 Costs will be $2000 Year 1 Year 2 Year 3 Year 4 Billed 1000 1000 500 2500 Cash rcvd 700 1200 600 2500 cost incurred 700 900 400 2000 Uses the POC method for revenue recognistion, what will be the addition to the balance sheet value of retained earnings at the end of year 2 from the project? Since they only want the addition In year 2 I did: 900/2000 * 500 However the answer takes a cumulative figure and does 1600/2000 * 500. if they want the addiition in year two only why is the figure cumulative?


I think you probably misread the question, or misinterpreted it, if they want just yr 2, they’ll probably say something like incremental or increase in…plus, what good is it to just find it for yr 2?, they can do that with yr 1… also, I think I posted elsewhere before, the correct way to do these poc profit calculation, as stated in the book, is to use the total incurred to total cost estimate, then subtract what’s been recognized previously from it, you’ll see the difference especially when there’s a change to cost estimate midway through the contract