If the Value of work certified is 300000 and the Value

Solution

Value of work certified = ₹3,00,00
Cash paid = ₹1,80,000

Retention money = amount held back from payment = 3,00,000 − 1,80,000 = ₹1,20,000 Retention Ratio =Retention Money/Work Certified=1,20,000/3,00,000=40% Note - Work uncertified (₹1,00,000) is ignored while calculating retention ratio; retention applies only on work certified. Usually the full amount amount of Work certified is not paid by the contractee and he may pay a fixed %, say 80% or 90% of the Work Certified – depending on the terms of the contract. This is known as Cash Ratio. The balance amount not paid is known as retention Money. This acts as a type of security for any defective work which may be found in the contract later on.