CFA Practice Question

There are 534 practice questions for this study session.

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
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