Final Answer:
The assessment of progress toward completion for performance obligations performed over time, resulting in an adjustment to related revenue, is treated as the application of the "percentage-of-completion" method.
Step-by-step explanation:
The assessment of progress toward completion for performance obligations performed over time, leading to an adjustment in revenue recognition, is treated as a critical aspect of revenue recognition under the "percentage-of-completion" method. This method is commonly employed when the criteria for recognizing revenue over time are met, and it is particularly relevant in long-term projects or contracts.
Under this approach, revenue is recognized proportionally as work on the performance obligation progresses, based on the percentage of completion. The assessment involves comparing the actual costs incurred for the performance obligation to the total estimated costs. This ratio of incurred costs to total estimated costs represents the progress toward completion. The revenue recognized is then adjusted accordingly.
This adjustment ensures that the revenue recognized aligns with the extent of work completed, reflecting the economic substance of the transaction. It provides a more accurate representation of the value transferred to the customer as the goods or services are delivered. The percentage-of-completion method is in accordance with the core principle of recognizing revenue when control of the promised goods or services is transferred to the customer, and it enhances the faithful representation of the entity's performance in fulfilling its obligations over time.