If at the end of the second year of a 4-year contract, a company determines total estimated costs are going to exceed the contract price,it immediately recognizes the total estimated loss.it recognizes the total estimated loss in the year of completion if it is using the point-in-time method.it spreads the estimated loss over the remaining two years if it is using the recognizing-revenue-over-time method.it treats the estimated loss as a change in accounting estimate.

International accounting standard require recognition of loss if the estimated costs exceed estimated revenues.International accounting standard 37 requires recognition of loss resulting from the estimated contract cost exceeding the estimated contract revenue in the same year in which it becomes probable. Therefore. option (a) is correct.

Answered: If at the end of the second year of a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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If at the end of the second year of a 4-year contract, a company determines total estimated costs are going to exceed the contract price,

it immediately recognizes the total estimated loss.
it recognizes the total estimated loss in the year of completion if it is using the point-in-time method.
it spreads the estimated loss over the remaining two years if it is using the recognizing-revenue-over-time method.
it treats the estimated loss as a change in accounting estimate.

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