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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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Percentage Completion (POC) Method

See Also:
Percentage Completion Method Example
Accounting Principles
Point of Sale Method (POS)
Installment Method
Completed Contract Method
Collection Method
Work Breakdown Structure (WBS)

Percentage Completion (POC) Method

Use the Percentage Completion (POC) method with construction based projects that extend over the course of several years. Furthermore, many accountants prefer the percentage completion accounting over the Completed Contract Method. It also paints a more realistic view of the company. Because the projects are usually long term lasting several years, it estimates completion for the company. So it shows revenues year by year than to just all of the sudden have one large inflow at the end where the project was completed.

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Percentage Completion (POC) Method Formula

The Percentage of completion formula is very simple. First, take an estimated percentage of how close the project is to being completed by taking the cost to date for the project over the total estimated cost. Then multiply the percentage calculated by the total project revenue to compute revenue for the period. Then derive the construction income by subtracting the cost from the period revenue.

Use the following simplified equations for the percentage completion formula and other associated formulas:

Period Costs (annual , quarterly, etc.)/ Total Estimated Cost = Percentage Completed

Percentage Completed * Total Project Revenue = Period Revenue

Period Revenue – Period Costs = Project Income

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Percentage Completion (POC) Method

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