Which formula explains how gross profit is recognized when an overall loss is expected on the contract under the percentage completion method?
A)Cost incurred / Estimated total cost.
B)(Cost incurred / Estimated total cost)× Contract revenue - Revenue previously recognized.
C)(Cost incurred / Estimated total cost)× Estimated total cost - Cost of sales previously recognized.
D)100% × (Estimated gross loss)- (Gross profit/loss previously recognized).

Question

Quizplus · Accepted Answer

Under the percentage completion method, when an overall loss is expected on a contract, the entire estimated loss is recognized immediately. Therefore, the formula for recognizing gross profit (or in this case, loss) would be 100% of the estimated gross loss minus any gross profit or loss previously recognized. This approach ensures that the loss is fully accounted for as soon as it is anticipated.

Which Formula Explains How Gross Profit Is Recognized When an Overall