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in the last video we looked at long-term contracts and essentially how to recognize revenue depending on whether we're using IFRS standards or private enterprise gap and the some of the methods that we went over were the percentage of completion method which is the basis for this tutorial cost recovery method and completed contracts so um if you haven't got general idea as to what these different methods are you might just want to go back on video and watch that but in this video we're going to be just talking simply about the percentage of completion method go through a problem and kind of deconstruct how to figure out how much revenue to recognize and how much gross profit to recognize so I've talked a lot so let's get to actually solving this problem so on the left hand side I've got this Condit that I've drawn with a nice little grown-up on top and a balcony kind of boxing it in to make sure tenants don't fall off and we know that we're going to be or the contract of the condominium is nine million dollars and the following is the cost data as you can see the nine million dollars is the contract price it's not nine million dollars a year just nine million for the entire project I've just posted it for each year right below it are the costs that are incurred in each period which is pretty straightforward and then below it are the estimated costs that will most likely be encouraged so the estimated cost to go and as you might see the estimates will sometimes change of course because they are just estimates like for instance in this scenario 2014 we estimated that there's four million of costs left but in 2015 we have 2.2 million cost that we've incurred and then there's 1.9 million to go so that's 4.1 million actual cost so our estimate is changed by a hundred thousand over the last year um and we don't have to worry about it as long as there are no losses in some situations we might have to make adjustments in our journal entries if there are losses so let's go through the template which I find very simple and usually students find it pretty simple to follow along it's right over here and it is going to have I'm just going to go ahead and kind of fill this out as we go so our contract price is nine million dollars and that's going to be the same for each year the cost incurred in this period we know are two million five hundred and eighty thousand so I'm going to throw that up there our cost to date are or actually not zero it's two point five eight million and estimated cost to go are four million as shown on the left hand side over there so total estimated costs are six six million five hundred and eighty thousand dollars and if you remember the percentage of completion method we we figure out how much revenue to recognize basically depending on how much of the project is complete and we figure out how much of the project is complete by dividing our our cost to date divided by our total estimated cost so two million five hundred eighty thousand divided by six million five hundred and eighty thousand that's going to be thirty nine point two percent of the job is finished so we've just found out the percentage of the job that's complete on a cost by cost basis so we're going to now recognize the revenue based on the percentage of the job that's complete so we match our revenues with our our expenses so 39.2% multiplied by 9 million will give us three million five hundred and eighty two thousand and it will our revenues from the previous year are zero because we've just started this contract and we basically began construction and the revenue for this year is three million five hundred eighty two thousand as well you might be wondering why I have this extra step here and it's because in later years and might get a little bit more confusing and you'll see that the template kind of us keeps everything fairly simple so gross profit to date how are we going to figure that out gross profit is revenue minus costs so we have revenue to date which is three point five eighteen million and cost to date which are two point five eight million so that means we're going to have 1 million two thousand dollars worth of gross profit and of course gross profit the previous year is zero so our gross profit this year is the same one point zero zero two million dollars so we've just finished that year and since I do have the problem solved in advance I'm just going to fill out the rest so that you kind of make sure you get up this entire idea and concept down cost incurred in the period are 2.2 million so I'll add that their cost to date are 2.2 million plus two point five eight million which is going to be four million seven hundred and eighty thousand and then the cost to go our 1 million nine hundred thousand which we got from our table to the left and then our total estimated cost will be six million six hundred and eighty thousand which will give us a percentage of seventy one point six percent and then we multiply 17 1.6% by 9 million and that gives us six million four hundred and forty four thousand revenue from the previous here is three five eight two as you can see right over here and then you just subtract revenue to date minus the revenue from the previous year or from the previous years and that will give you the revenue for this year so that would be two million eight hundred and sixty two thousand and that's how much revenue you would report in 2015 as for the gross profit to date again we take the revenue to date and we subtract the cost to date so six million four hundred and forty four thousand divided by or not divided by subtract four million seven hundred and eighty thousand which is going to be just going to be 1 million six hundred and sixty four thousand and the gross profit for the previous year is 1 million two thousand and so the gross profit that will be recognized is six hundred and sixty two thousand and finally for the last part um it'll be nine million again for the contract price we have 1 million 700 thousand cost incurred in this period cost to date is going to be six million four hundred and eighty thousand estimated to go while our contract is finished so we're done till estimated costs are six million four hundred and eighty thousand hundred percent of the job is complete which means our revenue to date is all of the revenue which should make sense subtract the revenue from last year and we get the revenue for this year which is two million five hundred and fifty six thousand and then our gross profit of date is nine million subtract six million four hundred and eighty thousand which is two million five hundred and twenty thousand sir if this is going to bit crammed in here and the numbers are all kind of blurring into each other and then we subtract the gross profit from the year before and our gross profit for the year of 2016 will be eight hundred and fifty six thousand so basically in this tutorial we figured out our gross profit for each year and our revenues for each year and the reason why this is helpful is we'll be able to now report the journal entries for each year which we'll look at in the next tutorial since this one has gone for long enough hopefully there's no issues with my math in this tutorial but if there are just put a comment and I'll edit the annotation and post up the edited solution alright see you guys next video if you have any questions regarding accounting or any of them return within our videos you can tweet us at Note pirate you can like us on Facebook to receive updates or to share any quick answers about how our videos might have helped and like always thanks for watching us on YouTube