Question

Choose the correct answer: Profit on incomplete contract is termed as (a) notional profit (b) costing profit (c) gross profit (d) net profit.

   Choose the correct answer:
Profit on incomplete contract is termed as
(a) notional profit
(b) costing profit
(c) gross profit
(d) net profit.

Cost Accounting

Cost Accounting

K. Alex 1st Edition

Chapter 10, Problem 5

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- The question refers to "profit on incomplete contract." This implies the profit recognized from a contract that has not yet been fully completed or executed. Show more…

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Choose the correct answer: Profit on incomplete contract is termed as (a) notional profit (b) costing profit (c) gross profit (d) net profit.

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Key Concepts

Incomplete Contracts

Incomplete contracts pertain to projects or contracts that are still in progress at the time of reporting. In such cases, estimating performance and profitability is necessary since the contract has not been fully executed. Accounting for incomplete contracts involves techniques that provide a fair representation of the work done and the corresponding profit, which is crucial for accurate interim financial reporting.

Notional Profit

Notional profit is an estimated profit calculated on work done in a long-term contract that has not yet been completed. It represents the provisional gain recognized on work performed to date, even though the final figures may change upon completion of the contract. This concept is essential in contract accounting where actual profit cannot be determined until all costs and revenues are fully known.

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