Depending on the terms of contract, the contractee may pay only 80% to 90% of work certified to the contractor. This is referred to as .....

INTRODUCTION TO COST ACCOUNTING

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

Depending on the terms of contract, the contractee may pay only 80% to 90% of work certified to the contractor. This is referred to as ____

A	Retention money
B	Cash ratio
C	Work in progress
D	Notional profit

Explanation:

Detailed explanation-1: -The contractee may pay a fixed percentage, say 80% or 90% of the work certified, depending upon the terms of the contract. This is known as Cash Ratio. The balance amount not paid is known as Retention Money.

Detailed explanation-2: -If the contract is completed more than half, 2/3rd of notional profit in proportion to cash received and work certified will be transferred to profit & loss account.

Detailed explanation-3: -Divide current effort by total effort and multiply by 100. For example, if a contractor estimates that a project may take 25, 000 labor hours and, to date, labor hours are at 16, 000, you can divide 16, 000 by 25, 000 and multiply the result by 100 to get 64% completion.

Detailed explanation-4: -Work certified is valued at cost . 4. The cost of material lost or destroyed is debited to the contract account.

Detailed explanation-5: -D) 2/3rd of notional profits, reduced in ratio of cash received to work certified

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