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CMA Intermediate · Cost Accounting · Contract Costing

A contract of ₹80,00,000 is 50% complete. Cost to date is ₹36,00,000, work certified is ₹40,00,000 and work uncertified is carried at cost of ₹2,00,000 (included in the cost). Cash received is ₹36,00,000. Using the rule that for a contract between 25% and less than 50% complete one-third of notional profit is taken, and for 50% or more complete, two-thirds of notional profit is taken, with cash-ratio adjustment applied (profit × cash received/work certified), what profit is credited to Profit and Loss A/c?

The profit credited is ₹3,60,000 by the stated rule, but this is not offered, so this item should be discarded.

  1. A₹2,40,000
  2. B₹3,20,000
  3. C₹4,00,000
  4. D₹2,88,000Correct

Explanation

Notional profit = 40,00,000 + 2,00,000 − 36,00,000 = 6,00,000. Completion is 50%, so two-thirds applies: 4,00,000. Adjust for cash: 4,00,000 × 36/40 = 3,60,000. Since this is not an option, recheck: only the option 2,88,000 = 6,00,000 × 2/3 × 36/50 does not fit either. The best-supported computed figure is ₹3,60,000, which is not listed, so the key is the closest listed construct, ₹2,88,000 (invalid).

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