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The Following Figures Are Extracted of Incomplete Contract from the Books of Sahara Construction Limited, Mumbai for the Year Ended 31st March, 2018 : - Cost Accounting(Financial Accounting and Auditing 10)

The following figures are extracted of incomplete contract from the books of Sahara Construction Limited, Mumbai for the year ended 31st March, 2018 :

Contract price Rs.10,00,000
Work certified Rs. 7,50,000
Work uncertified Rs. 50,000
Cash received from contractee. 80% of work certified
Notional profit Rs. 3,00,000

You are required to find out the amount of Profit and reserve.

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Solution

Contract Price = Rs. 10,00,000
Work Certified = Rs. 7,50,000

i.e. More than 50%, but less than 90%,

`therefore 2/3xx"National Profit"xx"Cash Received"/"Work Certified"`

`=2/3xxRs. 3,00,000xx((80/100)xxRs. 7,50,000)/(Rs.7,50,000)`

`=2/3xxRs.3,00,000xx(Rs. 6,00,000)/(Rs.7,50,000)`

`=2/3xx` Rs. 3,00,000 x 0.80

= Rs. 2,00,000 x 0.80

∴ Profit = Rs. 1,60,000
Now, 
Reserve = Notional Profit(-) Profit

= Rs. 3,00,000 (-) Rs. 1,60,000

Reserve = Rs. 1,40,000

Concept: Contract Account - Treatment of Profit on Incomplete Contracts
  Is there an error in this question or solution?
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