XYZ Construction Ltd. is working on a building contract. The following details are available: Particulars | Amount ----------------------- | --------- Contract Price | 50,00,000 Materials Issued | 12,00,000 Direct Wages | 8,00,000 Plant Installed (cost) | 5,00,000 Depreciation on plant (10%) | ? Other Expenses | 2,00,000 Work Certified | 30,00,000 Work Uncertified | 2,50,000 Materials at site | 1,50,000 Cash received is 80% of work certified. Calculate: Notional Profit.
Answer (1)
To calculate the Notional Profit for XYZ Construction Ltd., we need to understand the components of the construction contract and determine the costs and revenue elements.
Here's how we can approach the calculation:
Calculate Depreciation on Plant: The depreciation on the plant is given as 10% of its cost.
Depreciation on Plant = Cost of Plant × 10%
= 5 , 00 , 000 × 0.10 = 50 , 000
Total Costs Incurred: We sum up all costs associated with the contract.
Materials Issued: 12 , 00 , 000
Direct Wages: 8 , 00 , 000
Depreciation on Plant: 50 , 000
Other Expenses: 2 , 00 , 000
Total costs = 12 , 00 , 000 + 8 , 00 , 000 + 50 , 000 + 2 , 00 , 000 = 22 , 50 , 000
Calculate the Value of Work Done: The work done consists of the value of work certified and the value of work uncertified.
Work Certified: 30 , 00 , 000
Work Uncertified: 2 , 50 , 000
Total value of work done = 30 , 00 , 000 + 2 , 50 , 000 = 32 , 50 , 000
Calculate Notional Profit: Notional Profit is the difference between the value of work done and the total costs incurred.
Notional Profit = Value of Work Done − Total Costs Incurred
= 32 , 50 , 000 − 22 , 50 , 000 = 10 , 00 , 000
The notional profit for XYZ Construction Ltd. is 10 , 00 , 000 .
This value represents the profit that the company has earned from the construction project up to the point of the calculation, based on the work completed and costs incurred.
