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e. As of December 31, 20X2, the entity observes that:
i. Other costs incurred (excluding elevators) are $500,000.
ii. Performance is 20% complete (that is, $500,000 รท $2.5 Million).
Consequently, at December 31, 20X2, the entity recognizes the following:
i. Revenue $ 2.2 Million (a)
ii. Costs of Goods Sold $ 2 Million (b)
iii. Profi t $ 200,000
a). Revenue recognized is calculated as (20% x $3.5 Million ) + $1.5 Million.
($3.5 Million is $5 Million transaction price -$1.5 Million cost of elevators.)
b). Cost of Goods Sold is $500,000 of costs incurred + $1.5 Million cost of elevators.
Practical Application Note: Many contractors are signifi cantly involved in designing and
manufacturing the products that they procure, such that condition four (4) in ASC 606-10-55-21 (b)
is not met and the cost of procurement would be a faithful depiction of an entity's performance and
therefore a valid cost to be considered in measuring progress towards completion of the contract. This
signifi cant involvement is one of the reasons that many engineering, procurement and construction
(EPC) contracts provide the entity with the right to payment from the customer for the cost of
procurement plus a reasonable profi t in the event of termination for convenience by the customer.
Uninstalled Materials (continued)
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