Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be:.
A) recognized in the current period, regardless of whether the percentage-of-completion or completed-
contract method is employed.
B) recognized in the current period under the percentage-of-completion method, but the completed-contract
method defers recognition of the loss to the time when the contract is completed.
C) recognized in the current period under the completed-contract method, but the percentage-of-
completion method defers the loss until the contract is completed.
D) deferred and recognized when the contract is completed, regardless of whether the percentage-of-
completion or completed-contract method is employed.

The correct answer here is A)

Here is why.

Explanation:

If it is not recognized in the current period, it may be misleading. A forecast is indicative that a budget has already taken place and that resources have been released.

So even though cost estimates at the end of the incumbent period may indicate that a loss will result once the contract is completed, under the Zero-Profit, Completed- contract and percentage-of-completion methods, the entire loss that is expected on the contract must be recognized in the current period.

Cost estimation in project management speaks to identifying taking cognizance of the cost and other resources needed to finish a project whose purview or extent is properly defined.

A good cost estimate must include a detailed Basis of Estimate (BOE) report that describes the assumptions, exclusions, inclusions, accuracy and other aspects that are needed to interpret the total project cost.

Cheers!

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