If completion of contract is less than 25%, how much profit should be taken to Profit and Loss Account under contract costing?
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Solution and Explanation
Generally, if the work certified is less than 25% of the contract price, no profit is transferred to the Profit and Loss Account.
This conservative approach ensures that no profit is recognized too early, avoiding the risk of overstating profits on work that is not yet sufficiently progressed.
Therefore, when completion is less than 25%, no profit is taken to Profit and Loss Account.
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