X Shipping Limited is required by law to overhaul its shipping fleet once in every $3$ years.

The company$$s finance team was of the view that recognizing the cost only when paid would

prevent matching of revenue earned all the time with certain costs of large amounts which are

incurred occasionally. Thereby, it has formulated an accounting policy of providing in its books

of accounts for the future costs of maintenance $($overhauls$,$ annual inspections, etc$)$ by

calculating rates per hour sailed on sea and accumulating a provision over time. The provision is

adjusted when the expenditure is actually incurred. Is the accounting policy correct?

Answer rating: 100% (QA)

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