The percentage-of-completion method
On 1 April 2011, Roller Construction entered into a fixed-price contract to construct an office building for €18 million. Roller uses the percentage-of-completion method. Information related to the contract appears below.
|
December 31, 2011 |
December 31, 2012 |
|
|
Percentage completed |
20% |
60% |
|
Estimated total cost |
€ 13,500,000 |
€ 14,400,000 |
|
Profit recognized to date |
€ 900,000 |
€ 2,160,000 |
Required
(a) Calculate the revenues and expenses recognized for both 2011 and 2012.
(b) What impact did the €900 000 increase in estimated total cost in 2012 have on revenue recognition in that year?