A company uses the percentage-of-completion method to recognize revenue from its long term construction contracts and estimates percent completion based on expenditures incurred as a percentage of total estimated expenditures. A three-year contract for €10million was undertaken with a 30% gross profit anticipated. The project is now at the end of its second year, and the following end-of-year information is available:
| Year 1 | Year 2 | |
| Costs incurred during year | €3,117,500 | €2,582,500 |
| Estimated total costs | 7,250,000 | 7,600,0 |
The gross profit recognized in year 2 is closest to:
Explain the general principles of revenue recognition and accrual accounting, demonstrate specific revenue recognition applications (including accounting for long-term contracts, installment sales, barter transactions, and gross and net reporting of revenue), and discuss the implications of revenue recognition principles for financial analysis.
