Project Feasibility

&Finance

www.greybricks.com
Revenue Recognition Techniques
Long Term Contracts - contracts that extend beyond one
accounting period, often contracts related to construction
projects

1. Percentage of completion method

2. Completed contract method

Installment Sales – Payments are expected to be received over

an extended period.

3. Installment method
4. Cost recovery method
Revenue Recognition Techniques
Outcome can be reliably estimated: Percentage-of-completion method is
used under both IFRS and U.S. GAAP.

Outcome cannot be reliably estimated: Under International Financial

Reporting Standards (IFRS), revenue is recognized to the extent of contract
costs, costs are expensed when incurred, and profit is recognized only at
completion.

Under U.S. GAAP, the completed contract method is used when the outcome
of the Project cannot be reliably estimated. Accordingly, revenue, expense,
and profit are Recognized only when the contract is complete.

If a loss is expected, the loss must be recognized immediately under IFRS and
U.S. GAAP.
Revenue Recognition Techniques
Under U.S. GAAP, if collectability is certain, revenue is recognized at the time
of sale using the normal revenue recognition criteria.

If collectability cannot be reasonably estimated, the installment method is

used.

Under the installment method, profit is recognized as cash is collected. Profit

is equal to the cash collected during the period multiplied by the total
expected profit as a percentage of sales.

If collectability is highly uncertain, the cost recovery method is used.

Under the cost recovery method, profit is recognized only when cash
collected exceeds costs incurred.
Thank You