Involves long-term projects e.g construction of building, bridges,roads e.t.c Where the project may take more than one financial year to complete.
For long-term projects, profits can only be ascertained with certainty at the end of the project. Profits for the projects not yet completed are computed every year but in the profits calculation provisions are made so as to allow losses or other expenses in the coming periods.
Profit computed for incomplete projects are known as notional profits. It is from these profits that a certain percentage is taken as real profit which is transferred to the profit and loss account. The percentage taken as real profits depends on the degree of completion of the project.
Be a part of success
All copyrights reserved @ www.accountingcoachnotes.com 2021
You got any questions or want updates? Just subscribe to the form below.