Use the information below to answer the following questions:
The profit for a particular project of Blue Fin Ltd, using the percentage of completion method, was $470 000 for year 1 and $690 000 for year 2 (completion).
-What difference would there be to profit for year 1 if the completion of production method were used?
A) Profit would be $470 000 lower.
B) Profit would be $470 000 higher.
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 expenses proportionally to the extent of completion of the project. Therefore, in year 1, only a portion of the total revenue and expenses for the project would have been recognized, resulting in the profit of only $470 000. If the completion of production method were used, revenue and expenses would only be recognized when the project is completed, resulting in a lower profit for year 1.

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