Crow Co began a contract during the year, with revenue recognised over time based on costs incurred as a proportion of total expected costs. The contract price is $6,000,000, costs to date are $3,000,000 and estimated costs to complete are $4,000,000. What loss should be recognised in profit or loss for the year?

Correct answer: D) $1,000,000

Explanation

Total expected costs are $7,000,000, which is more than the $6,000,000 price, so the contract is expected to make a loss of $1,000,000. The whole expected loss is recognised immediately. Revenue = $6,000,000 x 3/7 = $2,571,429, and cost of sales is set so the total loss is $1,000,000. Recognising only the proportion that relates to work done ($428,571) is wrong.