Under ASPE, when work to be done and costs to be incurred on a long-term contract can be estimated reliably, which of the following methods of revenue recognition is preferable?
A) instalment method
B) percentage-of-completion method
C) completed-contract method
D) zero-profit method

Question

Quizplus · Accepted Answer

When work to be done and costs to be incurred on a long-term contract can be estimated reliably, the preferable method of revenue recognition under ASPE is the percentage-of-completion method. This method allows for revenue to be recognized based on the percentage of work completed to date, reflecting the amount of revenue expected to be earned on the contract. This method provides a more accurate representation of the financial position and performance of a company that engages in long-term contracts. The instalment method is used when the performance obligation is satisfied over time and is preferable if it reliably predicts the revenue earned or costs incurred. The completed-contract method is used where it is not feasible to estimate reliably the outcome of a contract. The zero-profit method is not recognized under ASPE.

Under ASPE, When Work to Be Done and Costs to Be