Question

can I know what is cost to date incurred and what is cost to complete in chapter construction contract.
what are the differences both items?
please let me know someone. :(

Answer 1

Answer

• The difference is minimal and very simple.
• Cost to date incurred is regarding cost that has already been incurred upto the point of ‘talking’ or upto the point of consideration.
• Cost to complete is the total cost that would be incurred to complete the project.
• Normally speaking, Cost to date incurred has already been incurred. It’s a past happening. Cost to complete is the cost that is yet to be incurred. It’s a future event.
• Lets go through an example:

--Constructions contracts are long term projects.
--They do not end in short period of time.
--They tend to be completed in number of years.
--Suppose there’s a project that is to be completed in 5 years, from 2018 to 2022.
--Revenue from Project is expected to be $ 10,000,000 throughout its life of 5 years.
--Project’s estimated cost to complete is (say) $ 750,000
--This $ 750,000 is the Cost to Complete at the beginning of 2018.
--Now, suppose by the end of 2018 (first year) $ 250,000 of cost was incurred.
--Then, at the end of 2018, Cost to date incurred = $250,000, while Cost to complete= $ 500,000 [750000 – 250000]
--Moving further, in 2019 $ 150,000 more has been incurred.
--Then at the end of 2019, Cost to date incurred = $400,000 [250000 + 150000] while Cost to complete= $ 350,000 [750000 – 250000 -150000]