Multi-Storey Builders Ltd had a large three-year project with total revenue of $8 000 000 and estimated total costs of $6 500 000.The project was 20 per cent complete at the end of the first year,70 per cent complete at the end of the second year and 100 per cent complete at the end of the third year.Revenues and costs were as estimated.
- How much profit was earned during the third year if the percentage of completion method was used?
A) $450 000
B) $750 000
C) $1 500 000
D) $240 000

Question

Quizplus · Accepted Answer

The percentage of completion method recognizes revenue and expenses as a percentage of completion. In this case, the project was 20% complete at the end of the first year, 70% complete at the end of the second year, and 100% complete at the end of the third year. Therefore, the revenue earned in the third year is $8,000,000 x (100% - 70%) = $1,500,000. The costs incurred in the third year are $6,500,000 x (100% - 70%) = $1,050,000. Therefore, the profit earned in the third year is $1,500,000 - $1,050,000 = $450,000.

Multi-Storey Builders Ltd Had a Large Three-Year Project with Total