What is Input method (cost-to-cost)?
In short
The input method measures progress on a performance obligation satisfied over time by the inputs used, most often costs incurred to date as a share of total expected costs (cost-to-cost).
Key takeaways
- Revenue to date = transaction price × (costs incurred ÷ total estimated costs).
- Changes in estimated costs are handled with a cumulative catch-up adjustment.
- If the whole contract is expected to make a loss, the full loss is recognized immediately.
Example
A $10,000,000 contract with $3,000,000 of $8,000,000 expected costs incurred is 37.5% complete: revenue of $3,750,000.
Where it's tested
BAR: Revenue for Specific Arrangements — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Under the input method for a long-term construction contract, revenue is recognized based on: