Highrise Constructions Ltd had a large three-year project with total revenue of $5 000 000 and estimated total costs of $4 200 000. The project was 25 per cent complete at the end of the first year, 55 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 first year if the percentage of completion method was used?
A) $200 000
B) $240 000
C) $250 000
D) $800 000

Question

Quizplus · Accepted Answer

To use the percentage of completion method, we need to calculate the revenue and costs recognized for each year based on the percentage of completion.

For the first year, revenue recognized would be 25% of $5,000,000 = $1,250,000
Costs recognized for the first year would be 25% of $4,200,000 = $1,050,000

Therefore, the profit recognized for the first year would be:
$1,250,000 - $1,050,000 = $200,000

Highrise Constructions Ltd Had a Large Three-Year Project with Total