calculate how much profit should have been credited to P L A c at the end of year when value of...........

Costing - Phase (I & II) Methods of Costing

calculate how much profit should have been credited to P/L A/c at the end of year when:

value of work certified is Rs. 8,00,000; cost of work to date is Rs. 6,60,000; cost of work not yet certified Rs. 20,000 and cash received Rs. 7,50,000.

The contract price is Rs. 10,00,000 and the estimated profit is 20%

Rs. 80,000

Rs. 1,00,000

Rs. 1,60,000

Rs. 1,50,000

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Explanation:

GIVEN: value of work certified is Rs. 8,00,000; cost of work to date is Rs. 6,60,000; cost of work not yet certified Rs. 20,000 and cash rrceived Rs. 7,50,000: the contract price is Rs. 10,00,000 and estimated profit is Rs. 20%.

completion of contract is 80% as (8,00,000/10,00,000*100) i.e. 25% or more than 25% but less than 50%

notional profit = value of work certified-(cost of work certified - cost of work not yet certified )

= Rs, 8,00,000 - (Rs. 6,60,000- Rs. 20,000)

= Rs. 1,60,000

cumulative profit= 2/3* notional profit* cash received / work certified

= 2/3 *1,60,000* 7,50,000 / 8,00,000

=Rs. 1,00,000 (amount that should have been credited to P/L A/c by the end of year)