Course Overview

Weighted Average Accounting in Contracting and Real Estate Investment Companies

Introduction

Contracting and real estate investment companies deal with long-term projects and complex financial transactions. Choosing a cost evaluation method has a direct impact on reported profits and the company’s financial position. One of the commonly used methods is the Weighted Average Method.

What is the Weighted Average Method?

It is an accounting approach that calculates the cost of a unit or project based on the average of accumulated costs, instead of relying on the cost of the first batch (FIFO) or the last batch (LIFO).

• Total accumulated costs are summed.

• Divided by the total units, areas, or completed stages.

Application in Contracting Companies

1. Multiple Projects: When handling more than one project, the average cost of materials or labor is calculated separately for each project.

2. Construction Stages: For projects with phases (foundations – finishing – electrical work…), the average cost of each stage is determined based on actual expenses.

3. Contracting Agreements: The weighted average is applied when evaluating the cost of materials shared among several contracts, ensuring a fair representation of actual costs.

Application in Real Estate Investment Companies

1. Real Estate Inventory: Whether residential or commercial units, costs are evaluated based on the average of land cost + construction + administrative expenses.

2. Similar Units: In cases of similar apartments or villas, the average cost per unit is calculated instead of assigning a separate cost for each unit.

3. Long-Term Projects: The weighted average helps reduce the impact of price fluctuations (such as construction material prices) on profits.

Advantages of the Weighted Average Method

• Simplifies the evaluation process, especially in large projects.

• Provides a fair representation of costs under fluctuating material prices.

• Reduces the risk of profit manipulation compared to other methods.

Conclusion

The weighted average method is an essential accounting tool for contracting and real estate investment companies. It strikes a balance between accuracy and simplicity, helping management prepare financial reports that objectively reflect reality.

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