Question

Two accounting students were discussing the timing of revenue recognition for long-term construction contracts. The discussion focused on which method was most like the typical revenue recognition method of recognizing revenue at the point of product delivery. Bill argued that recognizing revenue upon project completion was preferable because it was analogous to recognizing revenue at the point of delivery. John disagreed and supported recognizing revenue over time, stating that it was analogous to accruing revenue as a performance obligation was satisfied. John also pointed out that an advantage of recognizing revenue over time is that it provides information sooner to users. Discuss the arguments made by both students. Which argument do you support? Why?

Answer 1

Long-term contracts may recognize revenue under the percentage of completion method or the completed contract method. The percentage of completion method distributes cost and revenues based on the amount of estimated contract completion during the period.

As per John contention is recognising revenue over time and this is not appropriate because the revenue is recognised on the amount of work done i.e. on percentage of completion by lapse of time ewe cannot recognise the erevenue  

Therefore, The argument of Bill is considered to be right