- 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
Which of the following is true regarding the completed-contract method?
B. Billings on a construction contract represents the income of the project.
C. During the production on the project, the construction in progress account includes the profit.
D. Income is only recognized at the end of the project.
A. It does not use a construction in progress account.
B. Billings on a construction contract represents the income of the project.
C. During the production on the project, the construction in progress account includes the profit.
D. Income is only recognized at the end of the project.
Correct Answer: D
Because of uncertainty regarding costs or collection of the contract price, income cannot be recognized until the project is completed and collections have been made. The method does use a construction in progress account, but it does not include income during the project. Billings represents the actual amount that has been billed to the purchaser and is liability which is a measure of the contractor's obligation to perform.
User Contributed Comments 2
| User | Comment |
|---|---|
| kalps | completed contract method will have an asset or liability in BS no revenue or loss is recognised during life of project - it is only recognised at the end of the project |
| teddajr | No interim profit. Only Income at end of contract. |