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Unformatted text preview: Cash collection is reasonably assured Exceptions: Mining: revenue is recognized when extraction is complete prices are determined by market. When Cash is not Reasonably Assured: (multi year estate transactions) instalment method: revenue is recognized when received 3. Multi Year Projects: (construction) choice: a) Completed Contact Method: revenues and expenses are recognized only when the project is completed b) Percentage of Completion Method: revenue is recognized based on the amount % of work completed. E.g. Architectures Inc agrees to construct a building for 200 mil. Estimated cost of the project are 56 in year 1, 64 year 2, 40 mil year 3. Completed Contract Y1 Y2 Y3 Revenue 200 200 Cost 160 160 Income 40 40 % of completion Y1 Y2 Y3 Revenue 200 200*.35=70 200*.40=80 200*.5=50 Cost 160 56 64 40 Percentage cost 56/160 64/160 40/160 Income 40 14 16 10 Exemption: if a loss is expected on the project, the loss must be recognized a.s.a.p...
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- Fall '07