Accounts Notes: Profit of Incomplete contract

Tuesday, 12 April 2011

Profit of Incomplete contract

1) When % of completion is less than or equal to 25% then full Notional profit is
transferred to reserve.

2) When % of completion is above 25% but less than 50% following amount should
be credited to profit & loss a/c = 1/3 * Notional Profit * {Cash received / Work
certified}

3) When % of completion is more than or equal to 50% then the amount transferred
to profit is = 2/3 * Notional Profit * {Cash received / Work certified}
[Balance is transferred to reserve a/c]
☺ % of completion = {Work certified/Contract price} * 100

4) When the contract is almost complete the amount credited to profit & loss a/c is

a) Estimated total profit * {Work certified / Contract price}
b) Estimated total profit * {Cash received / Contract price}
c) Estimated total profit * {Cost of work done / Estimated total profit}
d) Estimated total profit*{Cost of work done*Cash received
Estimated total cost * Work certified}