completed contract method of accounting of a construction firm...?

Question

If a co. engaged in construction of residential buildings uses completed contract method of accounting, then should it account for prepaid expenses and outstanding expenses , while the project is still under construction ? Also how should it treat the office expenses / depriciation on assets in the mean time i.e. till the project gets completed

Answer 1

Under the completed contract method, you accumulate all identifiable costs into a contruction in progress a/c until the project is completed. Identifiable costs include depreciation of machinery and equipment directly used in the construction project. Office expenses will be expensed off to the income statement in the period in which they are incurred. This doesn't absolve the accountant from complying with other GAAPs, including the accrual basis of accounting, so yes, prepayments and accruals are recorded as usual.