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 third year if the percentage of completion method was used?
A) $800 000
B) $440 000
C) $400 000
D) $360 000

Question

Quizplus · Accepted Answer

The total profit for the project is the difference between the total revenue and total costs, which is $5,000,000 - $4,200,000 = $800,000. Using the percentage of completion method, profit is recognized each year based on the percentage of the project completed that year. By the end of the third year, the project is 100% complete. At the end of the second year, it was 55% complete, so 45% (100% - 55%) of the project was completed in the third year. Therefore, 45% of the total profit is recognized in the third year: 45% of $800,000 = $360,000.

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