Losses in a current period on a profitable contract
A) are generally deferred until the contract is complete.
B) are only recognized immediately under the completed-contract method.
C) are only recognized immediately under the percentage-of-completion method.
D) are recognized immediately under both the completed-contract method and the percentage-of-completion method.

Question

Quizplus · Accepted Answer

Under the percentage-of-completion method, losses must be recognized immediately in the current period even if the contract is still ongoing. This is because this method recognizes revenue and expenses based on the percentage of work completed, and it is considered more accurate to take into account any losses incurred at the current period. The completed-contract method, on the other hand, only recognizes revenue and expenses upon completion of the contract, which means any losses incurred during the contract period are deferred until completion.

Losses in a Current Period on a Profitable Contract