Percentage of completion
Percentage of completion is the method contractors use to recognise contract revenue as the work progresses rather than at handover. Under IFRS 15 progress is often measured by cost incurred to date divided by forecast final cost, and that percentage of the contract price, less revenue already recognised, is this period's revenue.
On this page
Where you meet it
It decides a contractor's monthly profit, so it appears in management accounts, audits and bank covenants. It is separate from what was certified: the payment certificate says what the client owes, while percentage of completion says what revenue has been earned. The difference shows up as unbilled work or billing in advance. The interim payments guide covers the certified side.
How it works
Take a contract worth AED 10,000,000 with a forecast final cost of AED 8,000,000. If cost to date is AED 2,000,000, the job is 25% complete, so cumulative revenue is AED 2,500,000. If AED 1,500,000 was recognised in earlier periods, this period's revenue is AED 1,000,000.
The method is only as good as the forecast. A forecast final cost that is never revised keeps reporting profit on a job that is slipping. When the forecast shows that cost will exceed revenue, the whole expected loss is recognised at once as an onerous-contract provision under IAS 37, not spread over the remaining work. Variations agreed with the client change the contract price and so the revenue.
Where it appears in SupaJack Construct
A revenue recognition run divides contract cost posted to the ledger for the project by the latest forecast final cost, recognises revenue for the period less what earlier posted runs recognised, and includes approved variations in the contract value. If the forecast shows a loss not yet provided, it creates the provision for the full increment. A posted run is reversed by a contra entry, never edited. See finance and VAT and the costing sheet the forecast is measured against.
Related terms and answers
- Costing sheet: the budget the job is measured against.
- Variation: changes the contract price.
- Payment certificate: what the client owes, not what was earned.
- Interim payments and retention