Financial Reporting and Analysis Q81
81Dynamo Construction Company uses the percentage-of-completion method to recognize revenue from its long term construction contracts and estimates percent completion based on expenditures incurred as a percentage of total estimated expenditures. A three- year contract for €15 million was undertaken. The project is now at the end of its second year, and the following end-of-year information is available:
| Year 1 | Year 2 | |
| Costs incurred during year | 4,150,000 | 3,800,000 |
| Estimated total costs | 8,500,000 | 8,500,000 |
The profit recognized in year 2 is closest to:
- Option : A
- Explanation : In year 2, the revenue is: 15 million * 3,800,000 / 8,500,000 = 6,705,882. The profit is: 6,705,882 - 3,800,000 = 2,905,882.
