Cost recovery method

[JCM]

Is there any difference between the cost recovery method used for installment sales and for contruction projects???

When should I recognized profit??? is it with costs... or after I have paid all the cost????

 

[notic4lyf]

Yes, they are different.

Cost Recovery: Recognize revenue equal to costs incurred
Completed Contract: Recognize revenue and profits only after project has been completed

 

[JCM]

I know the completed contract method is different from the cost recovery method, but I am asking in regards to the cost recovery method used in the installment sales method and the construction project method...

my question is profit is recognized when revenue is greater than costs?
I dont know if I am making my question right.... please let me know if you need more clarification

 

[notic4lyf]

You can't use cost recovery method for construction projects because there is no historical cost basis. I think that's what you're asking?

 

[JCM]

under long term contracts there is a method used for IFRS that says that if the firm cannot reliably measure the outcome of the project, revenue is recognized to the extent of contract costs, costs are expensed when incurred, and profit is recognized only at completion

 

[notic4lyf]

Right. If revenue>costs, then you only recognize revenue equal to costs and therefore no profit is recognized until all costs have been incurred. The mechanism is basically the same but the cost component is totally different.

 

[JCM]

Ok thanks notic4lyf and good luck on saturday.....