Question

What are the different methods of calculating profit on an incomplete contract? Explain with illustrations.

Answer 1

May hire employees. A sole proprietor has unlimited liability for all obligations incurred by the business, whether from operating costs or judgments against the business. All assets of the business belong to a sole proprietor, including, for example, a computer infrastructure, any inventory, manufacturing equipment, or retail fixtures, as well as any real property owned by the sole proprietor.

Answer 2

Answer:

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• ➪ In contract accounts there would be no difficulty in dealing with profits if the contracts were completed in the course of the financial year. Then the profit would be credited to the Profit and Loss Account. But difficulty arises when we have to deal with profits arising on contracts which are not complete at the end of the year. We cannot afford to credit the entire profit shown to the Profit and Loss Account.
• ➭ There is the possibility that next year due to rise in prices or wages or due to fines, there may be a loss. A provision has to be kept against such a contingency. Nor is it desirable that profit on a contract should be taken into account only when the contract is complete. In that case, the year in which the contract is completed, will show an abnormally high figure for profit.