The percentage of completion profit for a particular project of Redgate Ltd was $200 000 for year 1 and $220 000 for year 2 (completion). What difference would there be in profit for year 1 if the completion of production method were used?
A) Profit would be $200 000 higher.
B) Profit would be $200 000 lower.
C) There would be no difference.
D) None of the above.

Question

Quizplus · Accepted Answer

Under the percentage of completion method, revenue and expenses are recognized based on the percentage of work completed. In year 1, the profit is $200,000 which means that the percentage of completion for the project is less than 100%. If the completion of production method is used, no profit would be recognized until the project is completed. Therefore, the profit for year 1 would be $0, which is $200,000 lower than the profit recognized under the percentage of completion method.

The Percentage of Completion Profit for a Particular Project of Redgate