When Using the Cost Recovery Method of Accounting for Long-Term

question 281

Multiple Choice

When using the cost recovery method of accounting for long-term construction contracts under IFRS:

• A) Estimated losses on the overall contract are recognized before the contract is completed.
• B) Expenses are recorded each period, but revenue is only recognized when the contract is completed.
• C) Companies can use the percentage-of-completion method if that is their preference.
• D) Neither gains nor losses are recognized until the contract is completed.

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Definitions:

Financing

Financing is the process of providing funds for business activities, making purchases, or investing.

Commitment Fees

Fees charged by lenders to a borrower for an unused or untapped credit line, ensuring the lender retains availability of the funds.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk, often represented by government bonds.

Compensating Balances

Minimum balance requirements imposed by financial institutions on certain accounts, which borrowers must maintain to compensate for the lower interest rate or fees on loans.