ECONOMICS

Detailed explanation-1: -In case of loss on incomplete contract, this will be transferred to profit & loss account.

Detailed explanation-2: -(b) In case the contract is 1/4 but less than 1/2 complete, one-third of the profit disclosed as reduced to the percentage of cash paid by the contractee should be transferred to the Profit and Loss Account, the balance being treated as a provision.

Detailed explanation-3: -The estimated total profit on the contract can be calculated by deducting the total cost from the contract price. The profit and loss account should be credited with the proportion of total estimated profit on cash basis, which the value of work certified bears to the total contract price.

Detailed explanation-4: -When there is loss on an incomplete contract, it is fully transferred to the profit and loss account. When the contract account of an incomplete contract shows profit, it should not be treated as profit earned but only as ‘Notional profit.

Detailed explanation-5: -transferred to Profit and Loss Account. However, when contract is not completed within the financial year, only a part of the profit arrived is taken into account and the remaining profit is kept as reserve to meet any contingent loss on the incomplete portion of the contract.