Which condition is NOT a requirement for using the completed contract method?

Which condition is NOT a requirement for using the completed contract method?

• A. Reliable estimates can not be made
• B. Differences between using percentage of completion and cost complete method are significantly different
• C. Contract terms & scope not specific
• D. Work must be completed within one year

Answer: (D)

Understanding long-term construction contracts, the completed-contract method is used when you cannot reliably estimate progress or costs, or when contract terms and scope are unclear. Revenue and gross profit are recognized only after the contract is finished, which defers income until completion. The statement about work needing to be completed within one year is not a requirement for using this method. There is no year-limit restriction for applying the completed-contract approach; it can be used for long-term projects as long as reliable estimates aren’t available or the contract terms are too uncertain to measure progress reliably. When estimates can be made with reasonable accuracy, the more timely matching of revenue and expenses is achieved by the percentage-of-completion method, not CCM.

Understanding long-term construction contracts, the completed-contract method is used when you cannot reliably estimate progress or costs, or when contract terms and scope are unclear. Revenue and gross profit are recognized only after the contract is finished, which defers income until completion.

The statement about work needing to be completed within one year is not a requirement for using this method. There is no year-limit restriction for applying the completed-contract approach; it can be used for long-term projects as long as reliable estimates aren’t available or the contract terms are too uncertain to measure progress reliably. When estimates can be made with reasonable accuracy, the more timely matching of revenue and expenses is achieved by the percentage-of-completion method, not CCM.