CMA INTERMEDIATE COST ACCOUNTING TEST

PAPER NO. 8
Time Allowed: 1.5 hours Maximum Marks: 44

Instructions:
1. All questions are compulsory Questions
2. Working Notes are forming part of your answers

Question: 1

Prabhu Builders Ltd. commenced work on 1st April, 2007 on a contract of which the
agreed price was ` 5 lakhs. The following expenditure was incurred during the year
up to 31st March, 2008.

Particulars Amount ₹

Wages 1,40,000

Plant 35,000

Materials 1,05,000

Head office expenses 12,500

Materials costing ` 10,000 proved unsuitable and were sold for ₹ 11,500 and a part of
plant was scrapped and sold for ` 1,700. Of the contract price

₹ 2,40,000 representing 80% of work certified had been received by 31st March, 2008
and on that date the value of the plant on the job was ₹8,000 and the value of
materials was ` 3,000. The cost of work done but not certified was ₹25,000.

It was decided to (a) Estimate what further expenditure would be incurred in

completing the contract, (b) Compute from the estimate and the expenditure
already incurred, the total profit that would be made on the contract and (c)
Ascertain the amount of profit to be taken to the credit of Profit and Loss Account
for the year ending on 31st March, 2008. While taking profit to the credit of Profit
and Loss A/c. that portion of the total profit should be taken which the value of
work certified bears to the contract price. Details of the estimates to complete the
contract are given below:

(a) That the contract would be completed by 30th September, 2008.

(b) The wages to complete would amount ₹84,750.

(c) That materials in addition to those in stock on 31st March, 2008 would cost `
50,000.

(d) That further ₹ 15,000 would have to be spent on plant and the residual value
of the plant on 30th September, 2008 would be ₹6,000.

(e) The head office expenses to the contract would be at the same annual rate
as in 2007-08.
 (f) That claims, temporary maintenance and contingencies would require ₹9,000.
Prepare contract account for the year ended 31st March, 2008 and show your
calculations of the sum to be credited to Profit and Loss A/c. for the year. (10 marks)

Question: 2

Compute a conservative estimate of profit on a contract (which has been 90%

complete) from the following particulars.

Also calculate the proportion of profit to be taken to Profit & Loss Account under
any three methods.

Total expenditure to date 4,50,000

Estimated further expenditure to complete

the contract (including contingencies)
25,000

Contract price 6,12,000

Work Certified 5,50,800

Work not certified 34,000

Cash received 4,40,640

(5 marks)

Question: 3

A contractor, who prepare his accounts on 31st March each year, commenced a
Contract No. 220 on 1st July, 2016. The following information is revealed from his
costing records on 31st March, 2017:

Particulars (₹)

Materials sent to site 2,51,000

Labour 5,65,600

Foreman’s salary 81,300

A machine costing ₹2,60,000 remained in use on site for 146 days. Its working life is
estimated at 7 years and final scrap value at ₹15,000. A supervisor is paid ₹8,000 per
month and has devoted one half of his time on the contract. All other expenses
amount to ₹1,36,500. Materials at site on 31st March, 2017 cost ₹35,400. The contract
price is ₹20,00,000. On 31st March, 2017 two-third of the contract was completed,
however, the architect gave certificate only for 50% of the contract price and
₹7,50,000 had so far been paid on account.

Prepare Contract Account and state how much profit or loss should be included on
31st March, 2017 in financial accounts. (7marks)

Question: 4

Deluxe Limited undertook a contract for ₹ 5,00,000 on 1st July, 2021. On 30th June,
2022
when the accounts were closed, the following details about the contract were
gathered:

Materials Purchased 1,00,000

Wages Paid 45,000

General Expenses 10,000

Plant Purchased 50,000

Materials on Hand 30.06.87 25,000

Wages Accrued 30.06.87 5,000

Work Certified 2,00,000

Cash Received 1,50,000

Work Uncertified 15,000

Depreciation of Plant 5,000

The above contract contained an escalation clause which read as follows:

"In the event of prices of materials and rates of wages increase by more than 5% the
contract price would be increased accordingly by 25% of the rise in the cost of
materials and wages beyond 5% in each case."

It was found that since the date of signing the agreement the prices of materials
and wage rates increased by 25%. The value of the work certified does not take into
account the effect of the above clause. Prepare the contract account. (6 marks)

Question: 5

ABC Construction Ltd. commenced a contract on April 1, 2021. The total contract
was for ₹ 49,21,875. Actual expenditure for the period April 1, 2021 to March 31, 2022
and estimated expenditure for April 1, 2022 to September 30, 2022 are given below:

April 1, 2021 to March 31, April 1, 2022 to Sept. 30,

2022 (Actual) 2022 (Estimated)
Materials issued 7,76,250 12,99,375

Labour: Paid 5,17,500 6,18,750

: Prepaid 37,500 -

: Outstanding 12,500 5,750

Plant purchased 4,00,000 -

Expenses: Paid 2,25,000 3,75,000

: Outstanding 25,000 10,000

: Prepaid 15,000 -
Plant returns to store 1,00,000 3,00,000
(historical cost) (on September 30, 2021) (on September 30,
2022)
Work certified 22,50,000 Full

Work uncertified 25,000 -

Cash received 18,75,000 -

Materials at site 82,500 42,500

The plant is subject to annual depreciation @ 25% on written down value method.
The contract is likely to be completed on September 30, 2022.Prepare Contract A/c
and find estimated total profit. (8 marks)

Question: 6

A contractor commenced a contract on 1-7-2011. The costing records concerning the

said contract reveal the following information as on 31-3-2012.

Amount (Rs.)
Material sent to site 7,74,300
Labour paid 10,79,000
Labour outstanding as on 31-3-2012 1,02,500
Salary to Engineer 20,500 per month
Cost of plant sent to site (1-7-2011) 7,71,000
Salary to Supervisor (3/4 time devoted to contract) 9,000 per month
Administration & other expenses 4,60,600
Prepaid Administration expenses 10,000
Material in hand at site on 31-03-2012 75,800
Plant used for the contract has an estimated life of 7 years with residual value at
the end of life Rs. 50,000. Some of material costing Rs. 13,500 was found unsuitable
and sold for Rs. 10,000. Contract price was Rs. 45,00,000. On 31-3-2012 two third of
the contract was completed. The architect issued certificate covering 50% of the
contract price and contractor has been paid Rs.20,00,000 on account. Depreciation
on plant is charged on straight line basis. Prepare Contract Account. (8 marks)