Percentage of Completion Method (POCM)

What Is the Percentage of Completion Method (POCM)?

For a contract that runs across several years, waiting until handover to book all the revenue would leave the early years empty and the final year overstated. POCM solves this by recognising a share of the contract's revenue and profit each period, in proportion to the work completed. The stage of completion is usually measured by the cost incurred to date against total estimated cost — the cost-to-cost approach.

In India, a construction contractor applies POCM under AS 7, where it is mandatory once the outcome of a contract can be estimated reliably. A real-estate developer not on Ind AS follows the ICAI Guidance Note on Accounting for Real Estate Transactions (Revised 2012), which permits POCM only after project thresholds are met. Developers on Ind AS instead apply Ind AS 115, under which revenue is recognised over time only if strict criteria are satisfied, and otherwise at a point in time on possession.

How Percentage of Completion Method (POCM) Works

POCM turns a long contract into period-by-period revenue through a defined path:

1. 1Estimate total contract cost

   The project accountant and site team build a full budget of costs to complete — the denominator for the whole method.

2. 2Measure cost incurred to date

   Actual costs booked to the contract at period-end give the numerator; supporting bills and the WIP register are the artefacts.

3. 3Compute stage of completion

   Cost to date divided by total estimated cost gives the completion percentage for the period.

4. 4Recognise revenue and cost

   That percentage is applied to contract value to book revenue, with matching cost, in the profit and loss account.

5. 5Provide for expected losses

   If total cost is expected to exceed contract value, the whole foreseeable loss is booked immediately, not spread.

Where Percentage of Completion Method (POCM) Applies — Construction and Real-Estate Developers

POCM is the natural fit wherever value is delivered gradually over a long build:

• Multi-year construction contracts — Contractors building roads, plants or towers over two to four years recognise revenue as work proceeds under AS 7.
• Phased residential projects — Developers releasing a project in phases apply POCM per project once the Guidance Note thresholds are met.
• Fixed-price infrastructure work — EPC contractors with a fixed price and long timeline use cost-to-cost to smooth revenue.
• Retention-heavy contracts — Where a portion is retained until defect liability ends, POCM still books revenue as earned, with retention tracked separately.
• Ind AS developers — Larger listed developers test each contract under Ind AS 115 for over-time versus point-in-time recognition.

See also: Construction & Real Estate Accounting Service Sector Accounting (Project Billing)

How to Calculate Percentage of Completion Method (POCM)

Stage = 9 ÷ 30 = 30%. Revenue recognised to date = 30% × ₹40,00,00,000 = ₹12,00,00,000, with ₹9,00,00,000 cost, giving ₹3,00,00,000 profit booked so far.

Percentage of Completion Method (POCM): A Practical Example

A Mumbai contractor building a commercial tower for ₹40 crore has spent ₹9 crore of an estimated ₹30 crore by 31 March 2026. That is 30% complete, so it recognises ₹12 crore of revenue and ₹3 crore of profit in FY 2025–26 — even though the tower is nowhere near handover. If costs later look set to overrun the contract value, the full expected loss must be booked at once, not deferred.

Common Mistakes With Percentage of Completion Method (POCM)

POCM is only as reliable as the cost estimate behind it:

• Understating total cost — A low cost estimate inflates the completion percentage and books profit too early → review and revise the cost-to-complete each period.
• Recognising on cash, not cost — Booking revenue as customer money arrives instead of as work is done breaks the matching principle → measure completion by cost incurred, not collections.
• Ignoring expected losses — Spreading a foreseeable loss over future periods overstates current profit → provide the entire expected loss immediately under AS 7.
• Applying POCM below thresholds — A developer booking revenue before the Guidance Note thresholds are met recognises income prematurely → confirm the 25%/25%/10% gates first.
• Confusing billing with revenue — Treating milestone invoices as revenue mis-states results → revenue follows completion, with billing tracked as WIP or advances.

Related Accounting Terms

Terms a project business meets alongside POCM:

• RERA 70% Escrow Compliance — Fund-control rule on developer collections.
• Joint Development Agreement (JDA) — Landowner-developer land structure.
• Third-Party Administrator (TPA) Receivables — Hospital insurance receivables concept.
• Accounting Terms Glossary — Browse every accounting term in one place.