When work to be done and costs to be incurred on a long-term contract can be estimated dependably, which of the following methods of revenue recognition is preferable?
A) Instalment method.
B) Percentage-of-completion method.
C) Completed-contract method.
D) None of these answers are correct.

Question

Quizplus · Accepted Answer

The percentage-of-completion method is preferable when work to be done and costs to be incurred on a long-term contract can be estimated dependably. This method recognizes revenue and expenses in proportion to the degree of completion of the contract. Therefore, it provides a more accurate picture of the financial performance of the contract over time. The other two methods (instalment method and completed-contract method) are less appropriate in situations where the completion of the contract or the amount of revenue to be earned cannot be estimated reliably.

When Work to Be Done and Costs to Be Incurred