Homework Answers
Percentage of completion = Cost incurred in year 1 / Total cost
Total cost = Cost incurred + Estimated cost = $2250000 + $4000000 = $6250000
Percentage of completion = $2250000 / $6250000 = 0.36 i.e 36%
Revenue to be recognised in year 1 = Contract price * Percentage of completion
= $10400000*36% = $3744000
Gross profit to be recognised in year 1 = Revenue in year 1 - Cost incurred in year 1
= $3744000 - $2250000 = $1494000.
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