completed-contract method

Completed-Contract Method

In construction and project finance, a method for calculating profits and losses in which revenue is recognized only after the physical completion of the contract. This differs from the completed-contract method, which recognizes revenue as it is received, provided that it is prorated according to the percentage of the project that is complete. Each method may have its own tax advantages.

completed-contract method

A method of recognizing revenues and costs from a long-term project in which profit is recorded only when the project has been completed. Even if payments are received while the project is in progress, no revenues are recorded until its completion. The completed-contract method is a conservative way of accounting for long-term undertakings and is used for certain types of construction projects. Compare percentage-of-completion method.
References in periodicals archive ?
A change from using the PCM to another method of accounting, such as the completed-contract method, requires a change in accounting method.
For example, an LB&I official recently said that one of its original campaigns, which focused on land developers and the completed-contract method of accounting, resulted in numerous filings of Form 3115, Application for Change in Accounting Method (Athanasiou, "LB&I Campaign Lessons and Selection Process Explained," 157 Tax Notes 1053 (Nov.
The advantage of the completed-contract method is that it normally achieves the maximum deferral of taxes.
Although the completed-contract method allows you to defer taxes on your income, it prevents you from deducting losses on unprofitable jobs until the contract ends.
The completed-contract method is used when reasonable estimates cannot be made as to costs, profits, or time of completion; when the contract is not clear; collection is doubtful; or when the company may not be able to satisfy the contract.
There are two methods to recognize revenue on long-term construction-type contracts: the percentage-of-completion method and the completed-contract method. Percentage-of-completion is the preferred accounting method, as long as an executed contract exists and the buyer and contractor are expected to satisfy and perform their obligations, according to ARB 45, Long Term Construction-Type Contracts.
(17) Since enactment in the Tax Reform Act of 1986, section 460 has been repeatedly amended to reduce and ultimately eliminate the deferral benefit of the completed-contract method of accounting for long-term contracts.
It is called the completed-contract method. Under the hilarious provisions of this "method," a weapons manufacturer need not declare income from Defense Department sources until the contract is completed.
Certain construction contractors may be eligible to use the cash or completed-contract method of accounting for regular income tax.
* Defer all revenue until completion of installation as per the completed-contract method.
The Service says courts erred in decisions on the placed-in-service date of a retail store, the use of the completed-contract method, and an S corporation's payment of an employee's personal expenses.
The company chose to use the cash basis of accounting and the completed-contract method of accounting for its long-term contracts.