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A contractor is engaged in a $13 Million fi xed-price contract to construct a building, which includes
the installation of elevators. There is only one distinct performance obligation: the construction of the
building. The estimated cost to the contractor is $10 Million, including $1 Million for the elevators and
related equipment. As of December 31, 20XX, the contractor has incurred $4 Million in costs, including
the elevators, which have been purchased and delivered on-site but have yet to be installed.
CALCULATION OF % COMPLETE
Step 1: Adjust the cost-to-cost input method by subtracting the $1 Million for the uninstalled
elevators from the $4 Million in total costs incurred to date and from the $10 Million in
total estimated costs.
Step 2: Divide the two to determine progress toward completion, which is 33.3%($3 Million
divided by $9 Million).
CALCULATION OF REVENUE EARNED
Step 1: Subtract the $1 Million for the elevators from the $13 Million transaction price.
Step 2: Multiply the new transaction price of $12 Million by our progress of (33.3%) and then
add the $1 Million for the elevators back in, resulting in a current total of $5 Million in revenue to
be recognized.
$ 12 Million transaction price
33% percent complete
3.96 Million revenue earned
(includes all profi t earned)
1 Million uninstalled materials
4.96 Million revenue earned to date
Practical Application Note: If the $1 Million for the elevators was included in the calculation of
progress towards satisfaction of the performance obligation, the measurement of progress would have
been over -estimated and $5.2 Million of revenue would have been recognized.
IMPLEMENTATION EXAMPLE: BUILDING CONSTRUCTION
Uninstalled Materials (continued)
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