- CFA Exams
- CFA Exam: Level I 2021
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 21. Understanding Income Statements
- Subject 3. Revenue Recognition in Special Cases
CFA Practice Question
Estimated losses on long-term construction contracts are recognized immediately under the percentage-of-completion method. True or False?
Correct Answer: True
Although profits are recognized proportionately under the percentage-of-completion method, estimated losses on a contract are recorded in the period in which the loss is projected. This is an application of conservatism.
User Contributed Comments 3
| User | Comment |
|---|---|
| ColonelCFA | Dang, thought this was a trick question and it would be false because this is true with both methods. |
| ldfrench | Why don't you go back to making chicken, Colonel Sanders |
| schweitzdm | The percentage-of-completion method recognizes profit corresponding to the percentage of cost incurred to total estimated costs associated |