Landmark Group
23512 Points
Joined July 2007
Method that recognizes profit on a long-term construction contract as it is earned gradually during the construction period. This approach is preferred over the Completed Contract Method because it does a better job of matching revenue and expense in the period of benefit. It should be used when reliable estimates of the degree of completion are possible. It is more realistic and levels out the earnings. Under the method, the measure of revenue to be recognized each year is equal to percentage completed x contract price. One approach to estimate the percentage completed is based on the following relationship:

Any revenue that had been recognized in a prior period is subtracted from the cumulative total in arriving at the current period's income.