marsilni

Just think about it like this

Contract Price $1,000,000
3 year project

Year 1 actual costs $400,000
Estimated costs to complete $400,000
Total Projected Cost $800,000 (Yr 1 actual costs + estimated costs to complete)
Total Project Gross Profit $200,000 (Total Contract Price - Total Projected Cost)

Under % of Completion you would record the following:
Revenue $500,000
Expenses ($400,000)
Gross Profit $100,000

Calculated as follows:
You divide the Actual Costs to date by the estimated total project costs
$400,000 / $800,000 = .50 (so you are 50% complete)

50% of the Contract Price $1,000,000 * 50% = $500,000
Actual Expenses = $400,000
and the Gross Profit is the net of the two and you can also check your gross profit by calculating 50% of the Project Gross Profit ($200,000 * 50% =$100,000)

Under the Completed Contract Method you would record the following:
ZERO

Now let's move on to year 2
Year 2 actual costs to date $800,000
Estimated costs to complete $400,000
Total Projected Cost $1,200,000 (Yr 2 actual costs + estimated costs to complete)
Total Project Gross Profit/(loss) ($200,000) (Total Contract Price - Total Projected Cost)

At this point there is an estimated loss of ($200,000), so you need to immediately recognize this loss under both methods.

For % of completion you go through the same steps as above, getting the % complete and figuring out the estimated loss for the project on a lifetime to date basis
Revenue $666,666 (Total Revenue Revenue)
Expenses ($800,000) (Cumulative Year 1 and Year 2 )
Gross Profit ($133,334) (net of two)

So in year 2 you would record the following
Revenue $166,666 (Total Revenue - previously recorded revenue) ($666,666 - $500,000)
Expenses ($400,000) (Year 2 expenses)
Loss ($233,334) (net of two)

Cumulative Gross Profit ($133,334) (Year 2 loss of ($233,334) - Year 1 profit of $100,000)


Calculated as follows:
You divide the Actual Costs to date by the estimated total project costs
$800,000 / $1,200,000 = .666 (so you are 66% complete)

66% of the Contract Price $1,000,000 * 66% = $666,000
Actual Expenses = $400,000
and the Gross Profit is the net of the two and you can also check your cumulative gross profit by calculating 66% of the Project Gross Profit/(loss) ($200,000) * 66% = ($133,334)

For the Completed Contract, you would record a loss of ($200,000) in year 2

Hope this helps!