Percentage of Completion Method (RR)

Select this method to recognize revenue on the basis of percentage of completion of a project/extension. The recognition of revenue with reference to the stage of completion of a contract is often referred to as the percentage of completion method.

Contract revenue is recognized as revenue in the income statement in the accounting periods in which the work is performed.

  • When to use this method

    This method is used for:

    • Projects that have the contract type set to Fixed Price Contract.
    • Projects for which hardware deliverables are not available.

    Example: Engineering and development projects.

  • Calculation of revenue recognized

    LN calculates the revenue recognized using the following formula:

    Revenue recognized = Percentage Complete * Contract Amount

    The contract amount is the sum of sub-amounts of contract lines (based on which the amount is also linked to the business partners). In the Projects (tppdm6100m000) session, you can manually enter the percentage of completion or click Calculate to get the calculated value. LN calculates the percentage using the following formula, based on the Cost to Cost method:

    Percentage Complete = Costs (incurred)/ Estimate at Completion cost
Example

The total cost incurred at a particular time is 50.000, the estimated cost at the end of the project is 200.000. The percentage complete is then calculated as (50.000 / 200.000) x 100 = 25%

Note: For extensions, the percentage complete must be entered manually, because the EAC (estimate at completion) is not defined for an extension.

Levels at which revenue can be recognized:

  • Project
  • Extension

Constraints:

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