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 2 if the completion of production method were used?
A) Profit would be $470 000 higher.
B) Profit would be $690 000 higher.
C) Profit would be $1 160 000 higher.
D) None of the above

Question

Quizplus · Accepted Answer

The percentage of completion method recognizes revenue and expenses based on the percentage of the project completed, while the completion of production method recognizes revenue and expenses only when the project is completed. Since the project was completed in year 2, the profit recognized would be the same under both methods. Therefore, the profit for year 2 would be $690,000 under both methods. The only difference would be in the profit recognized in year 1, which was $470,000 using the percentage of completion method. If the completion of production method were used, there would be no profit recognized in year 1 and all profit of $690,000 would be recognized in year 2. As a result, the profit in year 2 would be $470,000 higher if the percentage of completion method were used instead of the completion of production method.

The Profit for a Particular Project of Blue Fin Ltd