Vardhman Ltd gets a contract of Rs.200 crore to build a hospital to be completed in 4 years. The management of the company wants to ascertain profit or loss on this contract only when the contract is completed. Is the management correct?

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Solution

No,although the true profit or loss can be ascertained only after the completion of the contract as per accounting period principle the contract period should be divided into time interval of twelve months for the ascertainment of profit of that period.

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