Oregon Construction Contractors (CCB) Practice Test

What happens to costs and profits under the completed contract method until project completion?

1. They are partially reported

2. They are recorded as incurred

3. They are deferred

4. They are disregarded

The correct answer is: They are deferred

Under the completed contract method, the costs and profits associated with a construction project are not recognized until the project is fully completed. This means that all expenses incurred throughout the duration of the project, as well as any profit from the project, are deferred and not reported in the financial statements until the project has reached completion. Deferring these costs and profits allows for a clearer assessment of the project's financial outcome only when all work is finished, thus preventing any potential misrepresentation of a contractor's financial performance during the project's ongoing phases. This method can be particularly advantageous in situations where the project timeline is lengthy, as it can help in avoiding the complications that arise from estimating revenues and expenses during the construction period.