Long Term Construction Project Shall Use Percentage of Completion Method
Long term construction project ( over 1 year) shall use Percentage of completion method to calculate profit. Cost recovery approach can only be used when the profit is incalculable(Note).
Case background
Company claim that a 2-year-long project’s profit is incalculable, file profit as zero under cost recovery approach.
Tax bureau’s opinion
The cost is calculable cause (a) payment is paid based on the percentage of project completion, based on the contract (b) company submit cost certificate application and receive payment after buyer complete inspection.
Note:
- The project receivable in each period cannot be estimated or
- The investment costs required to perform the contract and the degree of completion at the end of the period cannot be estimated or
- The cost attributable to the contract cannot be identified.
