COST ACCOUNTING
INTRODUCTION TO COST ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Work certified + Work uncertified
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Work in progress-Work uncertified
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Contract price-estimated total cost
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Work in progress-cost of work to date
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Detailed explanation-1: -Notional Profit: This is the actual profit earned by the contractor on completion of a project. It is calculated by deducting the cost of work certified from the value of work certified.
Detailed explanation-2: -The balance amount is treated as reserve. Thus, profit to be transferred to Profit and Loss Account is computed by the following formula: Transfer to P&L A/c = Notional profit × 1/3 Alternatively, a more common practice is to further reduce this amount by the cash ratio. Cash received Work certified Page 6 5.
Detailed explanation-3: -WIP refers to the raw materials, labor, and overhead costs incurred for products that are at various stages of the production process. WIP is a component of the inventory asset account on the balance sheet. These costs are subsequently transferred to the finished goods account and eventually to the cost of sales.