The profit for a particular project of Blue Fin Ltd,using the percentage of completion method,was $470 000 for year 1 and $690 000 for year 2 (completion).
-What difference would there be to profit for year 1 if the completion of production method were used?
A) Profit would be $470 000 lower.
B) Profit would be $470 000 higher.
C) There would be no difference.
D) It cannot be determined from the above information.

Question

Quizplus · Accepted Answer

Under the percentage of completion method, profit is recognized based on the percentage of the project completed. So, the profit for year 1 of $470,000 represents the profit recognized for the percentage of the project completed in year 1. If the completion of production method were used, the profit for year 1 would only be recognized when the project is completed. Therefore, the profit for year 1 would be lower than $470,000 as it only includes the costs incurred in year 1, and does not take into account the revenue earned in year 2.

The Profit for a Particular Project of Blue Fin Ltd,using