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How come employer who is in construction industry doesn't use percentage-of-completion method for revenue?

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  • How come employer who is in construction industry doesn't use percentage-of-completion method for revenue?


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Answer #1 | 23/12 2013 06:09
First of all, forget all the comments about whether or not the company is unethical. Second, what you describe is completely normal for a company with only $11MM in annual revenues. Companies that size usually don't bother with percentage of completion. Third, you are correct that using WIP accounts would be better. The question though is whether it is worth the effort. If your company has multiple, short-term contracts, then using the completed contract method is not going to be materially different from percentage of completion. I'd suggest you do some pro-forma calculations as of some date as to the balance sheet and P&L effects of using % complete. Also, figure out the time and effort to do that on a regular basis. If it seems worthwhile, then bring it to your boss's attention.
Answer #2 | 24/12 2013 13:48
Remember that either % Completion or Completed Contact are acceptable methods for long term contracts.

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