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 in proportion to the percentage of the project completed. If the completion of production method was used, revenue and profit would only be recognized at the end of the project, when it is fully completed. Therefore, in year 1, there would be no profit recognized under the completion of production method, resulting in a $200,000 lower profit compared to using the percentage of completion method.

The Percentage of Completion Profit for a Particular Project of Redgate