CMA Intermediate · Cost Accounting · Contract Costing
For a contract in progress, the cost of work certified is ₹18,00,000 and the cost of work uncertified is ₹2,00,000. Work certified is valued at ₹24,00,000. Under the usual treatment, the notional profit on the contract is:
Notional profit is ₹6,00,000. Work uncertified is carried at cost, so it adds nothing to profit. Profit equals the value of work certified, ₹24,00,000, less the cost of work certified, ₹18,00,000. Subtracting total cost from certified value alone, ₹4,00,000, wrongly charges uncertified cost.
- A₹4,00,000Correct
- B₹6,00,000
- C₹2,00,000
- D₹8,00,000
Explanation
Total cost to date = 18,00,000 + 2,00,000 = 20,00,000. Work uncertified is carried at cost, so the total credit is 24,00,000 + 2,00,000 = 26,00,000. Notional profit = 26,00,000 − 20,00,000 = 6,00,000? Check: the credit includes uncertified work at cost, so profit = 24,00,000 − 18,00,000 = 6,00,000. Hence the key is ₹6,00,000.
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