Percentage Completion Method

Percentage Completion Method Example

It is important to visually grasp the percentage completion method for full understanding. The following is a percentage of completion method example to help explain how the method works within a company. Bob is a project accountant for Whistle-at-You Construction Co. Because he is the primary project accountant for his company, this brings with it multiple additional responsibilities. He is responsible for all transactions and yearly revenue for a new tower project that is estimated to take 5 years to complete. Costs and revenues will be recorded at an accrual basis during this 5 year window of production. Whistle-at-You Construction uses the percentage of completion method of revenue recognition for all projects that will take over a year to complete. Bob has obtained and would account for the following information concerning the project over the five year period as follows:

General Information:

Estimated Project Cost = $500 million

Total Project Revenue = $750 million

Year 1:

Cost = $80 million

Percentage Complete = 16%

Revenue = $120 million

Income = $40 million

Year 2:

Cost = $100 million

Percentage Complete = 20%

Revenue = $150 million

Income = $50 million

Year 3:

Cost = $110 million

Percentage Complete = 22%

Revenue = $165 million

Income = $55 million

Year 4:

Cost = $90 million

Percentage Complete = 18%

Revenue = $135 million

Income = $45 million

Year 5:

Cost = $120 million

Percentage Complete = 24%

Revenue = $180 million

Income = $60 million

Percentage Completion Method

See Also: Percentage Completion (POC) Method

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3 Responses to Percentage Completion Method

  1. UNZIA ROSEMARY KALISTO April 25, 2018 at 3:11 am #

    Hi

    Thanks for the above explaination
    How ever i would to understand more on how you arrived at the 16% yearly percentage.

    Am a student and need to understand more.

    Thanks

    • unzia May 8, 2018 at 10:59 am #

      80/500 *100= 16%

  2. Eric Mutwiri Kathurima June 7, 2018 at 8:35 am #

    One challenge I find with this model is front-loading costs. Costs such as construction and professional fees are typically paid at the initial stages of a construction. I find effort expended more objective.

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