When work to be done and costs to be incurred on a long-term contract cannot be reliably estimated, which of the following methods of revenue recognition is preferable?
A) Percentage-of-completion method
B) Completed contract method
C) Sales method
D) Instalment method

Question

Quizplus · Accepted Answer

When work to be done and costs cannot be reliably estimated, the completed contract method is generally used. This is because the completed contract method recognizes revenue and expenses only when the project is completed. This method is appropriate when there is uncertainty as to the ultimate outcome of the project and the ability to recover costs. The percentage-of-completion method requires reliable estimates of work and costs, making it unsuitable in this scenario. The sales and instalment methods are not appropriate for long-term contracts.

When Work to Be Done and Costs to Be Incurred