- 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
Under the percentage-of-completion method, revenue is recognized ______
B. throughout a project, based upon the amount of work completed each year.
C. throughout a project, based upon the amount of cash received from the customer.
A. when a project is complete.
B. throughout a project, based upon the amount of work completed each year.
C. throughout a project, based upon the amount of cash received from the customer.
Correct Answer: B
The revenue will be recognized over the period of the contract, based upon the percentage of work completed.
User Contributed Comments 9
| User | Comment |
|---|---|
| hoiletab | dont you have to receive the funds? |
| treakj | No, what matters is the expenses the firm have incurred. Any differences will be accounted as liability or asset. |
| eb2568 | yes treakj, and as the company works each year it will incur costs, and those costs are used for the % complete |
| Khadria | Work completed may NOT be equal to the cost incurred ! ! ! |
| MattyBo | Costs incurred to date / Estimated project cost x Total contract price - revenue recognized in prior periods So it is a % of work completed |
| rfvo | Journal enteries would be helpful. |
| JKiro | hoiletab: differentiate between "under %-of-completion" revenue vs. "under completed contract" revenue |
| majesty | C would be true for Installment Sales method. |
| johntan1979 | But not for Cost Recovery method. |