Question

The total profit on a contract for ₹ 3,00,000 is ₹ 60,000 and the contract is 60% complete and has been certified accordingly. The retention money is 20% of the certified value, then the amount of profit that can prudently be credited to Profit or Loss Account will be:

• A. ₹ 60,000
• B. ₹ 36,000
• C. ₹ 28,800
• D. ₹ 48,000

Hint:

For incomplete contracts, always adjust for retention and certified work.

Answer 1

The Correct Option is C

Given:
Total Profit = ₹ 60,000
Work Certified = 60%
Retention Money = 20%
Work Certified net of retention = 80% of 60% = 48%
Amount of profit to be credited = Total Profit × \(\frac{\text{Work Certified}}{\text{Contract Price}}\) × \(\frac{\text{Cash Received}}{\text{Work Certified}}\)
So,
Profit to P & L = ₹ 60,000 × 60% × 80%
= ₹ 60,000 × 0.6 × 0.8
= ₹ 28,800
Therefore, the prudent amount of profit to be credited to Profit or Loss Account is ₹ 28,800.