Contract Profit

There are number of way where the profit can be calculated from the contract. The following are important consideration for profit recognition in contract costing. There are number of practices are available in the industry to recognized but those practices must not be confused with the international accounting standard criteria of profit.

1. Expected Loss

The expected loss of contract is immediately recognized in full.

2. Initial Activity

The contract in very early stage and the cost incurred for mobilization the activity . Then no profit should be recognized this is a situation where 1 to 5 % cost is incurred.

3. Cost of completion

A very famous method of profit recognition and this method is also supported by international accounting standard.

= cost of work done/estimated total cost x estimated profit

4. Work Certified

= value of work certified / contract Price x estimated profit

5. Work certified - Cost of work certified