When the outcome of a construction contract cannot be estimated reliably, but it is probable that the costs can be collected, the amount of revenue recognized each period is calculated based on
A) the percentage of completion method.
B) the completed contract method.
C) the zero proﬁt method.
D) no revenue should be recognized until cash is collected.

Question

Quizplus · Accepted Answer

When the outcome of a construction contract cannot be estimated reliably, but it is probable that the costs incurred will be recoverable, the zero profit method is used. This method recognizes revenue only to the extent of contract costs incurred that are likely to be recoverable, ensuring that no profit is recognized until a reliable estimate of the outcome can be made.

When the Outcome of a Construction Contract Cannot Be Estimated