The amount expended by the contractor on a contract not completed at the end of the accounting period is called .....

INTRODUCTION TO COST ACCOUNTING

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

The amount expended by the contractor on a contract not completed at the end of the accounting period is called ____

A	Work certified
B	Work uncertified
C	Work in progress
D	Progress payment

Explanation:

Detailed explanation-1: -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.

Detailed explanation-2: -It shall be credited to the contract account. Apply the principle-Credit what goes out. Sometimes it’s specifically mentioned that the material is returned though the contract is not completed, in such a case write “By material returned to store”.

Detailed explanation-3: -These contracts are still in process, and there are possibilities of profits being turned into losses on account of heavy rise in prices of materials and labour and losses on account of other unforeseen contingencies.

Detailed explanation-4: -NOTIONAL PROFIT It represents the difference between the value of work certified and cost of work certified. It is always calculated for each and every year of the contract and the amount of profit or loss of every contract is transferred to the company’s Costing Profit & Loss A/c.

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