- 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
The percentage used in the percentage-of-completion method of accounting for long-term construction contracts is generally based on the proportion of time elapsed relative to the overall length of the contract. True or False?
Correct Answer: False
Basing the percentage ratio on the amount of time elapsed may not necessarily provide an accurate estimate of performance (or actual work). The ratio should be based on the actual costs incurred relative to the estimated total cost of the project.
User Contributed Comments 2
| User | Comment |
|---|---|
| mrushdi | ...... retative to project estimated cost or actual cost projected to complete. pls explain. |
| jonan203 | it is estimated based on costs, not time... otherwise a $10,000,000 contract estimated to be completed in 10 years, that has no work done by the end of the 10th year, would be considered 100% complete. obviously this is not the case the percentage ratio measures costs/total costs not time/total time |