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Postby gitimamishra01 » Wed May 04, 2016 8:36 pm

Can somebody please explain to me the different condition and the revenue recognition methods used during long term contract.

Thank you :)

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Postby edupristine » Fri May 06, 2016 6:35 am

Hi Gitima

There are two well-known methods of revenue recognition for long-term contracts are the completed contract method and the percentage of completion method.Which one should be used depends on the specifics of the project.

The completed contract method -
all revenue is recognized at the end of the project.This method is used if it’s not possible to reliably estimate future costs, the project is short, or there are so many projects ongoing that a roughly equal number of contracts are finished every year.

Percentage-of-completion method -
revenue is recognized throughout the project based on the estimated completion percentage to date.Under ASC 605-35, there is a rebuttable presumption that management is capable of making these estimates and that, therefore, the percentage-of-completion method is the preferable method of accounting.

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