The course is Managerial Accounting! Please, could you answer an example 1

The percentage of completion is determined by comparing the work certified to the total contract price.

$$\text{Percentage of Completion} = \frac{\text{Work Certified}}{\text{Contract Price}} \times 100\%$$ $$\text{Percentage of Completion} = \frac{£1,200,000}{£2,000,000} \times 100\% = 0.60 \times 100\% = \boxed{60\%}$$

Since the percentage of completion (60%) is between 50% and less than 90%, the profit to be transferred to the Profit and Loss Account is calculated using the formula:

$$\text{Profit to P\&L} = \frac{2}{3} \times \text{Notional Profit} \times \frac{\text{Cash Received}}{\text{Work Certified}}$$

Substitute the given values into the formula:

• Notional Profit = £300,000
• Cash Received = £960,000
• Work Certified = £1,200,000

$$\text{Profit to P\&L} = \frac{2}{3} \times £300,000 \times \frac{£960,000}{£1,200,000}$$ $$\text{Profit to P\&L} = £200,000 \times 0.80$$ $$\text{Profit to P\&L} = \boxed{£160,000}$$

The profit to be taken to the Profit and Loss Account is £160,000.