Q.1 Contract costing is generally applied in which type of industries?
Mass production industries
Construction industries
Textile industries
Retail industries
Explanation - Contract costing is used in industries where work is undertaken for specific contracts, such as construction of buildings, roads, and bridges.
Correct answer is: Construction industries
Q.2 Which of the following is a key feature of contract costing?
Short duration jobs
Standardized products
Long-term contracts
Immediate sales
Explanation - Contract costing typically deals with long-term projects that may span several months or years.
Correct answer is: Long-term contracts
Q.3 What document is prepared to record the work certified in a contract?
Job card
Contract account
Certificate of work
Invoice
Explanation - A certificate of work is issued by an architect or surveyor to certify the portion of work completed under a contract.
Correct answer is: Certificate of work
Q.4 Which account shows the profit or loss on a particular contract?
Trading account
Profit and Loss account
Contract account
Capital account
Explanation - The contract account records all costs and revenues related to a specific contract and shows profit or loss at the end.
Correct answer is: Contract account
Q.5 Retention money in contract costing refers to:
Full payment made immediately
Amount retained by contractee
Bonus given to contractor
Interest charged on contract
Explanation - Retention money is a part of the payment withheld by the contractee until satisfactory completion of the contract.
Correct answer is: Amount retained by contractee
Q.6 Which of the following is not a feature of contract costing?
Large-scale jobs
Standardized output
Contract account maintained
Involves certified work
Explanation - Unlike process costing, contract costing deals with customized jobs, not standardized output.
Correct answer is: Standardized output
Q.7 Which professional usually certifies the value of work completed?
Manager
Engineer/Architect
Accountant
Contractor
Explanation - The contractee’s engineer or architect certifies the portion of work completed.
Correct answer is: Engineer/Architect
Q.8 The plant and machinery used on site is shown in contract accounts as:
Direct expenses
Indirect expenses
Overheads
Sundry expenses
Explanation - Plant and machinery used at the site are treated as direct expenses as they directly relate to the contract.
Correct answer is: Direct expenses
Q.9 Notional profit in contract costing means:
Total profit earned
Excess of value of work certified plus uncertified over cost incurred
Net cash received
Retention money
Explanation - Notional profit is a temporary profit figure used to estimate profitability before contract completion.
Correct answer is: Excess of value of work certified plus uncertified over cost incurred
Q.10 Escalation clause in a contract deals with:
Bonus payments
Cost increases due to inflation
Penalty for delays
Retention money release
Explanation - Escalation clauses allow contractors to adjust contract prices if costs of materials or labor increase significantly.
Correct answer is: Cost increases due to inflation
Q.11 If a contract is incomplete, how is profit usually recognized?
Full profit is recognized
No profit recognized
Portion of notional profit recognized
Only losses recognized
Explanation - Profit is recognized proportionately based on the percentage of work completed and certified.
Correct answer is: Portion of notional profit recognized
Q.12 Which of the following is considered a direct cost in contract costing?
Supervisor salary
Materials issued to site
General administrative expenses
Office rent
Explanation - Materials issued to site are directly attributable to a specific contract, hence treated as direct costs.
Correct answer is: Materials issued to site
Q.13 Retention money is usually released after:
Work is certified
Work is invoiced
Work is fully completed and defects liability period is over
Initial payment is made
Explanation - Retention ensures that contractors fix defects even after the project is completed.
Correct answer is: Work is fully completed and defects liability period is over
Q.14 Which principle is used in recognizing contract revenue?
Cost principle
Matching principle
Conservatism principle
Cash principle
Explanation - Revenue recognition in contract costing follows the matching principle, matching revenue with costs incurred.
Correct answer is: Matching principle
Q.15 Profit transferred to P&L account in incomplete contracts is:
Full notional profit
Estimated profit
Portion of notional profit
Gross profit
Explanation - Only a portion of the notional profit is transferred to P&L to maintain prudence.
Correct answer is: Portion of notional profit
Q.16 Which of these is included in contract costs?
Office salaries
Head office rent
Depreciation on plant used on contract
Corporate tax
Explanation - Depreciation on plant and machinery used on-site is included as contract cost.
Correct answer is: Depreciation on plant used on contract
Q.17 Which type of costing is contract costing most closely related to?
Job costing
Process costing
Batch costing
Operating costing
Explanation - Contract costing is a form of job costing where the 'job' is very large in size and duration.
Correct answer is: Job costing
Q.18 Which of the following is generally considered an indirect cost in contract costing?
Cement used
Architect fees
Site supervisor salary
Steel issued
Explanation - Site supervisor salary is common to the entire contract and not specific to a part of it, so it is indirect.
Correct answer is: Site supervisor salary
Q.19 What does 'work uncertified' represent?
Work completed and certified by architect
Work completed but not yet certified
Work invoiced
Retention money
Explanation - Work uncertified refers to the portion of work completed but not yet certified by an architect or engineer.
Correct answer is: Work completed but not yet certified
Q.20 When contract is 90% complete, profit transferred is based on:
Estimated profit
Notional profit
Total revenue
Total costs
Explanation - When contracts near completion, estimated profit is considered instead of notional profit.
Correct answer is: Estimated profit
Q.21 Which of these is not included in contract costs?
Direct labor
Direct material
General administrative overheads
Plant depreciation at site
Explanation - General overheads are not charged to specific contracts but are treated as period costs.
Correct answer is: General administrative overheads
Q.22 What is the main purpose of preparing a contract account?
To prepare balance sheet
To find out profit or loss on a contract
To record office expenses
To value stock
Explanation - The contract account helps determine the profitability of a particular contract.
Correct answer is: To find out profit or loss on a contract
Q.23 If a contract shows a loss, how is it treated?
Transferred to P&L immediately
Deferred till completion
Only partly recognized
Written off over time
Explanation - As per prudence, the entire loss is transferred to P&L immediately, even if the contract is incomplete.
Correct answer is: Transferred to P&L immediately
Q.24 Which clause in a contract provides for penalty in case of delay?
Escalation clause
Retention clause
Penalty clause
Completion clause
Explanation - Penalty clause specifies the damages payable if the contractor fails to complete work on time.
Correct answer is: Penalty clause
Q.25 The difference between certified work and cash received is usually due to:
Escalation clause
Retention money
Overheads
Materials lost
Explanation - Cash received is generally less than certified work because of retention money held by the contractee.
Correct answer is: Retention money