The cost recovery method of accounting for long-term construction contracts under IFRS is sometimes referred to as the:
A) "Sales-neutral approach."
B) "Completed contract method."
C) "Multi-step approach."
D) "Zero profit method."

Question

Quizplus · Accepted Answer

The cost recovery method, also known as the "Zero profit method," is used under IFRS for long-term construction contracts when the outcome cannot be estimated reliably. Under this method, revenue is recognized only to the extent of contract costs incurred that are expected to be recoverable, resulting in zero profit until the completion of the contract.

The Cost Recovery Method of Accounting for Long-Term Construction Contracts