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Loss in The Current Period On A Profitable Contract

The document discusses two methods for accounting for long-term contract losses: 1) Under the percentage-of-completion method, a loss on a profitable contract requires adjusting current period profits for estimated increased costs. 2) For an unprofitable contract, both the percentage-of-completion and completed-contract methods require recognizing the entire expected loss in the current period. The document also outlines required disclosures for construction contractors in financial statements and discusses revenue recognition for certain inventory items, after delivery when collection is uncertain, and methods for deferring revenue.

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Wawex Davis
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52 views4 pages

Loss in The Current Period On A Profitable Contract

The document discusses two methods for accounting for long-term contract losses: 1) Under the percentage-of-completion method, a loss on a profitable contract requires adjusting current period profits for estimated increased costs. 2) For an unprofitable contract, both the percentage-of-completion and completed-contract methods require recognizing the entire expected loss in the current period. The document also outlines required disclosures for construction contractors in financial statements and discusses revenue recognition for certain inventory items, after delivery when collection is uncertain, and methods for deferring revenue.

Uploaded by

Wawex Davis
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Long-Term

Long-Term Contract
Contract Losses
Losses
Two Methods:
Loss in the Current Period on a Profitable Contract
 Percentage-of-completion method only, the
estimated cost increase requires a current-period
adjustment of gross profit recognized in prior
periods.
Loss on an Unprofitable Contract
 Under both percentage-of-completion and
completed-contract methods, the company must
recognize in the current period the entire expected
contract loss.
Disclosures in Financial Statements

Construction contractors should disclosure:

the method of recognizing revenue,

the basis used to classify assets and liabilities as


current (length of the operating cycle),

the basis for recording inventory,

the effects of any revision of estimates,

the amount of backlog on uncompleted contracts, and

the details about receivables.


Completion-of-Production Basis
In certain cases companies recognize revenue at the
completion of production even though no sale has been
made.

Examples are:
precious metals or
agricultural products.
Revenue
Revenue Recognition
Recognition After
After Delivery
Delivery

When the collection of the sales price is not reasonably


assured and revenue recognition is deferred.

Methods of deferring revenue:


Installment-sales method Generally
Cost-recovery method Employed

Deposit method

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