8.10 © Contract Costing To the Contractee: 1. The contractee has to pay more for the inefficiene contractor has no incentive to reduce costs. 2 The price the contractee has to pay is unknown untit work, ¥ OF the og, After the Ih i PROBLEMS AND SOLUTIONS ‘4 Problem 8.1 1 January 2011: Contract price Machinery Materials Wages Direct expenses Outstanding wages Uncertified work Overheads Materials returned The following are the particulars relating to a co, MHraCt high bes, hy, \ e 500,099 30,09 170,60) 148.759 6.339 5380 9,009 8.240 1,609 Materials on hand 31 December 2011 Machinery on hand 31 December 2011 Value of work certified” Cash received Prepare the Contract Account for the year 2011 showing the amou: “ be taken to the credit of Profit and Loss A/c of the year. Also show the 3,100 22,000 3,90,000 351,000 int Of profit tha ay amount ofthe a in-progress as it would appear in the balance sheet of the year. Solution Contract Account for the year ending 31 December 2011 t To Materials 1,70,600 || By Materials returned Ua To Wages 148,750 By Materials on hand 0 Add: Outstanding 5,380} 1,54,130 By Work-in-progress: To Direct expenses 6,330 |} Certified 3,90,000 se To Overheads 8,240 || Uncertified 30g To Depreciation on machinery | 8,000 Ta To Notional Profit c/d $7,000 a —_— sn) 4,04,300 || By Notional Profit b/d To P&L Ale* 34,200 (:r00s32.00) To Balance c/d (Reserve) 22,800 eB 57,000 ocdMned WIL Gdll iScat may work. ee] 3s S1S1 yes ork eetfid 8 €3,90,009 Which i Je is by the foil Thy ut va AM lowing fort 78% o Contract ¢, te Formula ® Sona Con i! : r Mt "eo 5,09 tne O81 lotion i al promt 2 Cash re re 3 wanes tied Bat ember 29)) Ages ng wares ois OR Ee 3300 Progress. 22,001 Work Certified ' Work unceniteg °°9.00 its 58 | Less: Cas 399.000 Cash received 331.000 $8,000 Less: Profit in reserve petlen 82 Moder contractors have undertaken he following two con rs ontracs on 1 January Contract A ContracrB t Materials sent to sites 85,349 Labour engaged on sites 14378 Plants installed at sites at cost 15,000 12,500) Direct expenditures a@, ee Establishment charges oe Materials returned to store oe ‘Work certified ee Cost of work not certified ~ Le Materials in hand on 31 December 2011 Non 2100 Wages accrued on 31 December 2011 - x40 180 Direct expenditure accrued on 31 December 2011 a 9300 Value of plant on 31 December 2011 ’ 7 Acca rect A and 200,000 foc for contrast 4 and %2\ 4 ltt contract prices have been agreed at ¥2,50,000 ws! Cash has been received from the contracees a8 £110 Contract 4 %1,80,000 and contract B 21,40,000. work-in-progress 's Accounts Factor. : and show bow the Prepare Contract Accounts, Contractee “Al ppear in the Balance Sheet of the cont Ser osca8.12 © Contract Costing Solution Contract A Account {for the year ending 31 December 2011 To Materials sent to site To Labour To Plant To Direct expenditure To Establishment charges To Wages accrued To Direct expenses accrued To Notional profit c/d To Profit & Loss A/c* To Balance c/d (Reserve) | a 85,349..|| By Materials (returned 9 74,375 stores) Bs 15,000 || By Materials in hand | #4 “$107 || By Plant in hand 4 4,126 || By Work-in-progress; 1 2,400 Work certified 1, My 240 Work uncertifieg "95:00 io 28,275 by 2,12,932 h 17,400 || By Notional profit bia “a 10,875 7 28,275 v 0 x *Note. Profit transfered to Profit and Loss Account has been calculated ay fig Sp flan, 2 ‘ Cash received i Profit (notional) * 5 * Work cenified 2 1,80,000 = 28,275x=x2—— = 27 3*1,95,000 17,400 Contractee’s Account” = eal By Cash i 31st Dee, 2011 é - To Balance c/d 180,000 1,80,000 Vue 1 Jan, 2012 lea By Balance b/d til Contract B Account for the year ending To Materials r To Labour ae To Plant c To Direct expenditure ee By Plant in hand _ Establishment charges ane By Work-in-progress: “ ages aci . i fr Fi ee 2100 tees certified ures 1a penditure accrued 180 |) By wat oe — ol ‘otional loss transferred eo ——_|} P&L are L~| 1,63,281 =e Scanned wittt GamScaoo 121 12 2 \a \w Contractee's [= Account perl iF By Cash cect A.000 1,40,000 hte {January 2012 1___|] By Balance big Balance Sheet 45 0 31 December 2011 eect apiities Assets i z ed (2,400 + 2,100) | 4,500 |} Plant tess es menses accrued 420 Ss Dep. (27, 00-7900) 20,500 a Materials in hand i180) Work-in-progres: eee oe contract A 17,400 Contract 4 c contract B Work certified ss on ihe 1,95,000) Ls 3| 13,987 |) Work uncertified ks0a| 1.99.500 Less: Profit in reserve 10,875 . 1,88,625 Less: Cash received 1,80,000| 8,625 Contract B Work certified 4 Work uncertified | | Less: Cash received 8,000 | -t for @10,00,000 for two : ‘i to-a building contract for 210,00, “ntlem 83. The following information relates #0 5 | RS, ie, 2009 and 2010: 2009 210 t } | i 34,000 05,000 Materials issued ae a j Direct wages 22,000 1400 Diet expenses 6000 as Indirect expenses 7,50,000 pitt Work certified 8,000 7,000 Work uncertified 5,000 2,000 Materials at site . 14,000 10,00,000 Mant issued 6,00,000 x8 5.000." ree Cash received from contractee vas £7,000 ¢ 2009 and 2010 eived from + 2009 and 2010 was Tg for two year Das think The value of plant at the end 0} i « i) Contacte’ AC od Lass ‘Accounts aS ti ge Pare (i Contract Accounts 80 ransfer 10 profit on into consideration such Profit © DCalined WIT vdInScaoy ot ; wir % nu nomntcite « Wah Solution t Account s Contrac and 2010 forthe year 2009 and 2 1 ¢ rk-in-progress: ? 2009 00,000 |] By Wo 1 To Materials ab ‘Work certified —7,50,009 i To Direct wages “32'000 || Work uncertified "8,999 is ; To Direct expenses 6000 || By Materials at site ———— fh To Inet expenses oft To Depreciation on plant 7,000 yu! , sol (14,000 - 7,000) To Balance e/d (Notional profit) | 1,98,000 ‘ 7,63,000 7a 00 || By Balance b/d i To P&L Ae 405,600)) By toy 2 sensee) | (snsne 3 Sm 1 To Work-in-progress A/c (Reserve) 22400) oe ta ‘ 2010 To Work-in-progress: By Contractee A/e 1/00 Certified 750,000) By Materials at site 1 1 Uncertified 00 7,58,000, Less: Profit in reserve 92,400] 6,65,600 To Materials at site b/d 5,000 1 To Materials issued 84,000 To Direct wages 1,05,000 2 To Direct expenses 10,000 : To Indirect expenses 1,400 To Depreciation on plant 4.000 ay (14,000 + 2,000 - 7,000 ~ 5,000) = To P&L Ale 7 132,000 Lan 10,07,000 10,07 ——— ri, Contractee's Account 2009 z To Balance cid £:00,000 /) By Cash ray 6,00,01 2010 a) Ma, To Contract Ale '0,00,000 By Balance b/d : ~———__ || By Cash (balance) c 10,00,000 Problem 8, aor poblem 84 Com, L Complete) from, Pete & Conservative estimate a e of prot y Profit: following particulars, Mustrate rp easoniaakt R DCaNned WILT UalliSCanaire (0 date Contract Costing © 8.18 v ul OP Further expenditure to eo) Rigas sntigencies) 'mplete the contract 85,000 a lung © & price 17,000 cot ied 1,53,000 yn or certified 100.000 we not cet wor ceived 8,500 e 81,600 (ICWA Inter; CA Inter, Adapted) sation of Notional Profit it z Vork certified veel 1,00,000 oe 8,500 1 expenditure 1,08,500, ae 7 fi 85,000 Notional profit a aeulation of Estimated Profit > Contract price ee es: Expenditure incurred ames Estimated further expenditure 17,000 1,02,000 Estimated profit —= 2 281,600 | Notional profit x 5 ‘Cash ratio = 23,500 *3* {00,000 = 12,784 (Approx.) Work certified 1,00,000 2 National profit x Work certified 3. Estimated profit x Go Contract price = 23.500 753099 = 815,359 (Approx. Contract price * Cash ratio 100,000 81,600 = 51,000 « 755000 * Tooooo 7 €27,200 al te 4 Estimated orofit « ee * Cash ratio 85,000 81,600, bi = 51,000 * 505.005 * Tengo ~ 834680. h es 85 Alcon Construction ‘Company Ltd commenced its business of construction on ‘The tial balance as on 31-12-2009 showed the following balances: rig Dr (9 cr (D wi? share capital = 41,00,000 "ceived on account of contract (80% of work certified) e mn Sd and buildings 30,000 - BeghteY at cost (75% at site) ‘4p,000 = nat 4,000 me ¢ *etials at site 40,000 - i dcarined witrbamsca8:16 0 Contract Costing 55,000 2,000 rect abour - 30,000 Expenses at site Fuel and power reer and veils 0H , 16.000 fori ome equine io unsgcand ler vo oe expetes 20 pcan wes ‘in : Tana 109 and work certified is €1,50,000, The yo een a T1000 (ot cost). Machinery costing ®2,000 war fre ore hace custanding were £200, Depreciation on machinery was a 10%," "ee ‘You ate required to eaeulte the profit from the contract and show how i appear in the Balance Sheet as on 31-12-2009, be na progress will Selation Contract Account {for the your ending 3. SEO To Materials 40,000 || By To Direct labour 55,000 Certified 1,50,000 To Expenses at site 2,000 Uncertified 1,000 | 1,sin To Wages outstanding 200 || By Materials at site sau To Fuel and Power 2,500 || By Machinery at site a3 To Machinery at site 30,000 |] By Machinery returned \ To Notional Profit /d 53,300 1,83,000 To P&LA/e By Notional Profit,b/d (53,300 * 2/3 « 80%) 28,427 To Reserve 24,873 53,300 ae Note: Postage and telegrams, office expenses and rent and rates have been assumed t ren expenses of business and thus not charged to Contraet Account. These are t0 6 P&L A/c of the company. ‘ Balance Sheet : as on 31 December 2009 : t Liabilities Rl Assets be Work-in-progress wae —Certified j y —Uncertified Tai" 13! ae Ww Less: Cash received =o wi Less: Reserve wy CamScalet tig Ue of ‘ein, 0 00 0 gis ayet 40 al WAS BS alee Engineers Ltd undertook server pth es of Contract No. 197, °°! contract using th Contact Costing © 8.17 , oes : i Y84 2010. The following ‘ 20,250 15,500 10,500 2.400 2300 cer direct charges 3.00 38 _contract took 13 weeks to complete 2.650 ‘The valu rest the period were 200 and 23,000, roma. a eee 10 after charging de «of £16,000 rging depreciation at 20%, The orion to be charged to the tractor wat ae Value of tractor was 20,000 and the ies te rovded a 10% on wok co. ny gan a oe ot prepare the aforesaid Contract Account, assumin seed from the contractee tools and stores returned at Plant was also returned at a 18 the balance of the contract was duly (B.Com. Hons., Delhi) sintion Contract Account for the year ending 2010 Particulars @ | Particutars [et To Direct materials 20,250 || By Contractee’s account | 76,758 To Direct wages 15,500 || (Balancing figure) To Stores (10,500 — 3,000) 7,500 ToLoose tools (2,400 - 200) 2,200 To Tractor expenses 2,300 + 3,000) 5,300 To Depreciation of tractor* To Depreciation on plant (%20,000 ~ 16,000) To Other direct charges Works Cost ToAdministrative and office expenses (10% of works cost) Total Cost To Profit & Loss Ale (20% of total cost)8.18 0 Contract Costing Problem 8.7 The following is the trial balance of M/s K K Construction Co, the execution of Contract No. 1247, for the year ending 31 December 2009. Contractee’s Account (amount received) Building Creditors Bank Balance Capital Account Materials Wages Expenses Plant i @ i ' » engaged iy z z = 3,00,000 1,60,000 - 72,000 35,000 _ 500,000 200,000 ~ 1,80,000 = 47,000 = 2,50,000 . 8,72,000 “872,000 The work on Contract No. 1247 was commenced on 1 January 2009, Materials costing %4,000 were at site on 31 December 2009. work certified was 80% of the total contract work Solution estimated at 215,000 on 31 December 2009, Expenses are charged to contract at 2: The plant is to be depreciated at 10% for the entire year. Prepare Contract No. 1247 Account for the year 2009 and make out the Balance Sheet at ‘on 31 December 2009 in the books of K K Construction Co, 1,70,000 were sent to the site of the contract but those worth %6,000 were destroyed in an accident. The wages of €1,80,000 were paid during the year. A plant costing %50,000 was used on the contract all through the year, Another plant with a cost of €2,00,000 was useq from 1 January to 30 September and was then returned to the store. Materials of the cost of ‘The contract was for %6,00,000 and the contractee pays 75% of the work certified. The at the end of 2009. Uncertified work was of wages, (B.Com. Hons., Delhi) Contract No. 1247 Account Sor the year ending 31-12-2009 ie 1,70,000 180,000 45,000 To Materials To Wages To Expenses To Depreciation on plant (5,000 + 15,000) To Balance e/d (Notional Profit) 20,000 90,000 15,05,000 To P&L Ale (90,000 x 2/3 x 5/8*) To Balance (Reserve) 37,500 52,500 90,000 z By Work certified 480,000 By Work uncertified 15,000 By R&L Alc (Loss by accident)| 6,000 By Materials at site 4,000 5,085,000 By Balance b/d 90,000 [90,000 ee ocalned WIL Le Scarr Contract Costing 0 8.19 Balance Sheet as on 31 December 2009 z is ia ° yi as00 5,00,000 || Building 1,60,000 Ae ; P Plant in stores 1,80,000 Me tas of materials _ 6,000 Materials in store 30,000 31,500 Work-in-progress: Jes: unabsorbed €XP- 2,000* Certified 4,80,000 29,500 Uneertified 15,000 ps Dep. on plant 5,000* | 24,500 4,95,000 creditors 72,000 || Less: Reserve 52,500 4,42,500 Less: Cash received _3,00.000 1,42,500 Materials at site 4,000 Plant at site 45,000 Bank 35,000 eee [Ls 5,96,500 5,96,500 unt to be transferred (0 P&L A/c has been Num [The cash ratio for computing the smo taken as 5/8, ie. 3,00,000 (Cash see iy may ao be when 28 75% 8 = 4.80,000 (Work certified in the question. / 2. ‘The unabsorbed expenses shown in the balance sheet is, = %47,000 - 45,000 = 2,000. ' 3. Depreciation on plant of €2,00,000 as been charged to cOntreet only for 9 months. on on plan iy it has been charged '° rovit in the balance Sheet For remaining 3 mon! on 31 December each Year, commenced is accounts 7 ‘ering the said contract reveal the Prob ‘em 8.8 A contractor, who prepares his ‘outract on | April 2011. The costing records cone ining information on 31 December 2011: . " Forme’ aa "379.300 emen’s salary ; or 146 days. Their working lite is estimated ys rine is paid €4,000 p.m, has Plan a7, 2S costing %2, site f ye 1g %2,60,000 had been on beea ead thee final sorap value at €15:000 re eupervisor, who 1 BA Te and other ‘fen, PPtoximately thre: fourth of h . Sin og amount to Zi 0,000, Materials in han er 2011 cost. %25,400. sting © unsuitable a for %4,000 and part 3 sold at a profit of ti 3] Decembs his time t0 q was sold ityg tthe material costi Josting £4,500 was foun Magy? costing a 500. (on 31.12.2011) unsuited t0 the contract was Page ag was accepted by the cot for i no ciNiaGk prieg was 122,00,00F of the contract ‘was completed. Arcot at's ° oar ind £7,50,000 hes 80° cal