Computations. To determine the income from a long-term contract, a taxpayer
(i) Computes the completion factor for the contract, which is the ratio of the cumulative allocable contract costs that the taxpayer has incurred through the end of the taxable year to the estimated total allocable contract costs that the taxpayer reasonably expects to incur under the contract;
(ii) Computes the amount of cumulative gross receipts from the contract by multiplying the completion factor by the total contract price;
(iii) Computes the amount of current-year gross receipts, which is the difference between the amount of cumulative gross receipts for the current taxable year and the amount of cumulative gross receipts for the immediately preceding taxable year (the difference can be a positive or negative number); and
(iv) Takes both the current-year gross receipts and the allocable contract costs incurred during the current year into account in computing taxable income.