Use the information below to answer the following questions:
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) It cannot be determined from the above information.

Question

Quizplus · Accepted Answer

The percentage of completion method recognizes revenue and profit based on the percentage of work completed, while the completion of production method recognizes revenue and profit only when the project is complete. Therefore, if the completion of production method were used, there would be no profit recognized in year 1, leading to a $200,000 lower profit in comparison to the percentage of completion method.

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