CMA Intermediate · Cost Accounting · Contract Costing
For a contract, costs incurred to date are Rs 40,00,000, work certified is Rs 50,00,000, work uncertified is valued at Rs 4,00,000 at cost, and cash received is Rs 45,00,000. Using the conventional notional profit approach, what is the notional profit?
Notional profit is Rs 14,00,000. It is the value of work certified (Rs 50,00,000) plus work uncertified at cost (Rs 4,00,000) minus the total cost incurred (Rs 40,00,000). Cash received does not affect notional profit.
- ARs 10,00,000
- BRs 14,00,000Correct
- CRs 6,00,000
- DRs 9,00,000
Explanation
Notional profit = work certified + work uncertified - cost incurred = 50,00,000 + 4,00,000 - 40,00,000 = Rs 14,00,000. Hmm, but uncertified work at cost is already included in costs incurred, so it is added as value of work in progress. Rs 10,00,000 ignores uncertified work. Rs 6,00,000 wrongly subtracts it, and Rs 9,00,000 uses cash received.
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