Stage of Completion (Percentage of Completion)

Stage of completion, also known as percentage of completion, is a measure of the extent of work that has been completed in respect of a contract and is usually expressed in percentage terms. IAS 11 Construction Contracts requires accounting for construction contracts on the basis of stage of completion. Stage of completion may be measured in the following ways:

Value Based Methods

  • Value of work completed in proportion to total contract price. The value of work may be determined by conduction surveys of work performed.

    Stage of Completion %

    =Value of Work Certified as completex 100
    Total Expected Production or Usage
  • Physical units of work completed in comparison with total number of units to be completed under the contract.

    Stage of Completion %

    =Physical Units of Work Completedx 100
    Total Number of Units as per Contract

When value based methods are used in accounting for profit making contracts and loss making contracts, revenue is recognized on the basis of work certified as complete whereas contract cost is measured as the balancing figure.

Cost Based Method

  • Costs incurred to date in comparison with total expected contract costs. When estimating the stage of completion under this method, only those costs incurred must be considered that reflect the present status of work performed. Therefore, any costs that relate to future contract activity shall be ignored such as cost for the purchase of materials that are yet to be used in the construction work.

    Stage of Completion %

    =Costs incurred to Datex 100
    Total Contract Costs
  • When cost based method are used in accounting for profit making contracts and loss making contracts, cost is recognized on the basis of stage of completion whereas contract revenue is measured as the balancing figure.
  • Where outcome in respect of a contract is not certain, stage of completion method is not used to account for the construction contract.

Test Your Understanding

ABC Builders use cost method to calculate the stage of completion of its construction contract. Total estimated contract costs of their contract are $100 million. In the first year of their contract, ABC Builders have incurred the following costs:

  • 1. Cost of purchase of raw materials worth $10 million ($5 million of which are unused by the year end)
  • 2. Payment of salaries and wages of $5 million ( $1 million of accrued salaries are unpaid by the year end)
  • 3. Payment of advances to subcontractors of $20 million (Subcontractors have performed work equal to 50% of the amount of advance by the year end)
What is the percentage of Stage of Completion of the construction contract?