a ¥ — “==an ee Learning ding this chapter, you should be able to é er stu e contract costing and describe its sy . H pa ntiate between contract Costing and a stand the contract Costing produc, ate ; ul bare contract account and ascertian the Rotional profit on incomplete contract zs | 1 Jain the calculation of profit taken to Profit and loss account On incomplete contracts eg in how work-in-progress shown in balance sheet, , explai Objectives Pecial, features Job costing © and treatment of Various item of costs RODUCTION ing is employed in case of big jobs described as ‘Contracts’, Since contracts are big Bane osting principles are employed to collect, apportion and ascertain the cost of a Ie costing is also a form of specific order costing where Work undertaken on such , Contract ra per the specific requirement of the customer (contractee). Each contract is ay differ fit ascertainment and control. The contrac yt JN contract ™: ate unit for the purpose of cost and pro! treated as separ Ives heavy expenditure, spreads over a longer period, and may be undertaken 2 work usually involv even ‘continue over more than one accounting period. This Means, the co different sites. It - - be calculated even on incomplete contract at the end of an accounting yee and profit ae a ; od of costing termed as ‘contract costing’ or ‘terminal costing” has to | Hence, @ me aoe cost and profit on such bigger jobs i.e. contract, A separate comm eT aan ascertain cost of completion and profit on each contract, Contract Costin pats ad ae oe engaged in construction of building, roads, bridges, railway lir yed in business tata i E % oe ee, lines and other civil and mechanical engineering works.Cosy 9.2 DEFINITION AND CHARACTERISTICS ICMA has defined contract costing as “that form of specific order costing Which a fi undertake 2 i i h order is of long duration hery en to customer’s special requirements and eac 8 duration. ay of constructional or engineering nature. Hence, when compared to a job, it tate’ duration of time for completion. It can be regarded as bigger job. . Characteristics: The distinguishing features of contract costing are as follows : Features regarding production @ The work is undertaken as per the customer's specific requirements. Hence, each os differ according to its nature, size and contents of work. Gi) The work will be of a relatively long duration and involves heavy expenditure, (il) The work is usually undertaken at pre-determined sites. (iv) The work is usually of a constructional or en, () Plant and equipment may be purchased or hired for the duration of the contract. (vi) The completion date is fixed in advance, and penalties follow delays, (Wil) Certain aspects of the work may be assigned to sub-contractors. neering nature. Features regarding cost i) The cost unit in contract costing is a contract. (ii) A separate account is prepared for each contract to ascertain the cost and Profit or loss, on contract. (iii) Most of the items of cost can be easily identified with a specific contrac! directly. (iv) Indirect costs normally consists of Head Office expenses. These are apportioned to y, contracts on some suitable basis. ) () The contract price is often fixed in advance and payment is received at var and henee eh, ious sta completion, based on surveyor’s or architect’s certificate. Contract price may cont esclation clause. (vi) A separate contract ledger in maintained for recording costs when the number of co are large. 9.3 DIFFERENCE BETWEEN JOB AND CONTRACT COSTING There is a great deal of similarity between job and contract costing because a contract is not a bigger job. Contract costing, more or less, follows the same principles as job Costing Purpose of cost collection, cost ascertainment and cost control. However, there are certain difference between the two. These can be summarised as follows: 1. Jobs are generally performed within the factory premises wherea: undertaken usually at the pre-determined site (s). 2. In job costing, a work order ora batch of products can be taken as job unit where in Costing, unit for the purpose of ascertainment of cost is contract. S work on contii # gf t conn a Of the Cost eta irect cosy ott costs. or act al cog, ing eg 4 ant pa ofthe oa eo By iti oe “On tig asc fy comparatively 4 go is of comps i ho Mono ‘wae a wor! yen takes more than ong coo tig 4 anal? sis ascertained af Mg Fs ony? contracts i.e. on the Wo pre aplete itable for pring oga, Mbege eo ing is Suitable foy Printing y, Fs ene works, profes, ee ee construction of by, 90° te. ent ion nese ti Sonal yg Ta ing i std i Hoag Met gg aig Cogs ts, ™ a ttt f CONTRACT Costyyg PRO, ty “si THe volved two parties je, (The 69 "tO ang “tet BE sca OF AN Organisation, Who una mai Be ris 1 ete i este wt contractee 1S Again a person op an OrBaistgg thea ae ncracloe usually ONBARES an ay ite wo tipg tk Oy he ir THE CO he ender document eh ag wn gies %) he tender to th : wean Pe orsubmist olen resent itis ct ee 4 e act ag « cotA° parties. The c i 2 hae este pee conditic a i me a Acoet J otter contract involves a large thee Ee ice ; ale nt of Cost and other Important Tens ime! Sg Trea sually maintains a Contra ions ei & common pracicetoaltagiy - act. Itisa onta Yaesu is pae number ca ont core cular conc ar asignel wt Lets discus the elating to es pe Mossad Contract. The discussion alsin fost in @ sof co ts alent of arog "explain of item Memsin contact tng Contragy ‘ement amount ang based on the architects ceri, a jon ba 2 ong peg Pio, ay le, Payments 1 HO sap, of { on je! tract Revenue Con Fe rise of the following syenlue may comprise of fontract Contr unt of contract reveny ) The Initial amount the contat ie cont pie tract revenue due to escalation case, e in contract “gd ie due to x e in contract revenu reas (fe) Incr Additonal ork permed by coat iily agreed upon even by contacts ntract revenue due to incentives g ease in contrac (@ Increa (@) Decrease in cc 63 per conta ems nue due to penalties imposed by contact as pe act revenueTreatment of Materials Cost (SeDisectenaterials ials like bricks, cement, steel, ete. are eee me necetemntncd cnc watusastcats e cosa ret F Peete + Stores materials are received through material requisitions, from The cost of the same should also be debited to the respective Cees account, Gil) Materials on site : At the end of an accouni year, the cost of materials on site and carried forward to the next year by debiting to the contract account. Gy) Materials returned to the stores : The materials which are no more contract site are returned to the stores. The cost of materials so returned deducted from materials issued or credited to the contract account. () Normal loss of material : Some materials on the c use of nature of material or work. There is no of sy loss. Only the cost of material at site is calculated at the end of accounting period. In this w cost of normal loss gets included in the cost of contract (i) Abnormal loss of materials : The cost of materials contract site is treated as abnormal loss. It should be Account and credited to the cor Sent to is Sstimay required aty should either ‘ontract site is normally lost, Ttis ith Separate accounting treatment ntract account. Accounting Treatment of Labour Cost @ All cost incurred on labour employed at the contra ged to the contract acco ‘act account. Adjustment for ct site should be treated as direct lab unt. Total wages on accrual basis should Sees outstanding or advance Payment of wa Gi) A separate Wage sheet shou Gili) Salaries of the staff employ labour cost. Hence, these s| indirect expenses or overhe. Id be prepared for each contract. ed at Head Office and Central Stor hould be assig, ad cost. Treatment of Direct Expenses All expenses ot! ‘©S are considered ag indi ned to all contracts on some equitable basi./ wi overhead Costs o ot location: Most of 4 mcs wentified With enc oa A ONtra, i of machiner Che My, pe mE morte 8 gi Vlog ate jonment :Iis only the ey spp? eg a a Fons contracts on some “Auitabyg Ni SS i e Is, Ns fy of Plant 14 Maching, < oe” 4 machinery May be taken, i, fF 3” When it is taken on lease ge Foe nt, Ifthe plant of equipme, ie ear contract, there are ‘Wo waye ic rac scout MAY Be dbieg ye y nea ge depreciated value at the eng Hi h the cog, ing ag F ed back to store or to othe, mov" ween the cost and the depre a s nae ig, PE vely, depreciation ma Me Tepe Dletigg Pe hu a iat » Be ale My tt en used at the contract site dur, the gh de o i a Ng Sed on yg il ti, a wher plant costs such as Maintenance : thay i lf z Oe net account , Te miaget ine contract fue oi setae ag i ul i contracting ih ~ times, & pee y engaged for 8 special, sgances ees oe ing, the jobs lil ning 9 ig Pe ven to different sul contractors, The ee 8 tig te ny B * ld fog Pe agg pi contract. a Hs sho beast ql 4 certified and work uncertifieg ie q I ct generally takes longer duratig eontract B of time fo ad fan accounting peti. The propesgt | jest or engineer appointed for uch unre The wor w roaress can be classified into value of Work ¢ be asses "ON inom Sed bythe ertified ang let cons a 4 { Work un ork iF Value of Work Certified : Ale ofthat oti cone © cettfied or approved by the contractee’s architect veluedat contract price (ie selling pricy @ Costof Work Uncertiied : This is that par ofthe Wot in Bor approved by the architect or engineer. Its Vad at ng element of profit in it. The work uncertif; Itis the y, 1YS prior tothe end ofthe the value of work certified and cost of uncertified Work appear contract account. ccounting period. Both ‘onthe credit side oftheyn Money : i ins a certain percentage of the amount centifieg for ite This fale atend money’. It is in the form of security agai a St defi hargeable for delay in completion of the work. It 1S retained for q ae Reece the completion of the contract. Thus, itis release ne Perse ie ‘warranty period is over. Treatment of Expected Losses Whenever certain future losses can be foreseen or expcted ona Particular ¢ should be made in the year of such ¢stimation in order to meet future conti Provision required should be debited to the contract account, Extras Sometimes, the contractor the original contract, This %y Ontract Ngencies They may be asked by the contractee to do some work Which is becomes necessar ‘count of some additi d to charge extra "Bes are treated as income for the aleulation of Profit on Incompleted Contracts fthe work ona Contract is started and finished during the same ac an be calculated in the usual manner and transferred to Profit ontracts which extend to more the ss should be accounted for the 4, if yes, how much. If it is a tttoot { notional or total estim,, i i Si + Tecan be calculate ag tog PE cetfied i Pepto uncertified 5 wi os! we work done til date 0 eo cos! potion ee gl a = 7 Profit :Itcan be caley > wena Meda fly, eS «Pri SB cost al otal and estimated cos oy P rare date ‘il contac. i nal cost = gstimated additional costs to, complete t a : contract ng ed profit ‘9 octet “3 ening notional Profit ort esting pe and loss account of the year, The por ; iy ie profit and loss account can be cal sfert® lel ive should be retained in work ¢ gout SHO ingest yhen an incomplete conty Dare ing loos I an age wh disclosing 108s in an accountng vgn In this case, entire amount of loss jg tobe transfey 0 profit i) When the Work on the contract ayy ray tl © work certified is less than Oe of te cng the aa gt f ict Thevholeamountof none potistetinggyy : words, no profit should beta np ken tothe creitofprfae fit and loss a, (0) When the work on the contract has Teasonably coun (i) If the value of work certified is ong Notional Profit or If reduced on cash received basis then ; 1 Cash Received 3 Notional Profit x ———* Work Certifiedon cash received basis then : Cash Received Work Certified > Ss juced 2 Notional Profit x ) When the work on the contract is nearer completion. A contract is con; nearer completion when the work on it is largely completed and the cost of ren work on the contract can be fairly estimated. On such contracts the basis of deter the portion of notional profit to be taken to the profit and loss account will | estimated profit. One of the following formula can be used for the purpose: Work Certified (i) Total estimated profit « "Conse price Work Certified is Cash Received ii) Total estimated profit « erent w p Contract price Work Certificate Cost of work done till date jij) Total estimated profit < ii) R Total estimated cost Cost of work done till date : Cash Received (iv) Total estimated profit = —_—_ Total estimated cost Work Certificate Cost of work done till date is the sum of all the costs incurred on the date. This can also be calculated as follows Work certified Add : Work uncertified Less : Notional Profit Cost of work done till dateos, in : Generally the sty, Note robe transferred to py, ta ts CAN USE any of ah ich reduces the ng Loge re tracts Jeted con: comP! fi period in which, the work in ai kong ontract account: theg pe ctee’s personal A/e Dp thy % ila contract A/c ’ “ rie contract price) By with tractee’s account j |S deb con s And ¢, ork in progress, the materig jas ang at ; PM te, The contract ao C204, mga wit tn is transfered to pop 8 lg Mah om! tis i and ty las oti ttt ag Cou Moun op kta rsonal Accouns he, gg see's Pe aay Pg sonal account of i font Clee iNet Min n Fie money is received from the Contract We ot oa 7 c k Ale Dr. “shag Pp en Ban! contractee’s personal Ag a Meda ae amount of money Teceiveg) “a it! sunt blancedandyiqar court contract is in p athe e work on 1H of ey Piette on ate el Side of et whit vag apy prcin-prowress shown one Set sid cr te Him the contractecis treated as ed fo ropes He Mae lac S On acon a Sheet ite letion this account is debited yj x the aa of oy of complet Wo st ‘ Pasig the lon atertc’s personal Alo To Contr Alc (With contract pi count palance in the a ; own on the assets Ow shows the amount of the Contract, 1 contract price in re The total contra mple 1. of work certified was & 15,09, alue of v 90.0031 Ma, ido Of st incurred, the work costing i wed was 10,00,000 ied wa ied to determine the amount ae resequred to determine the Sing 31st March, 2014,Cash Received * Work Certified a 4,50,000 x 10,00,000 3 1 00,000 ~ Rs-2,00,000 The contract price in respect ofa project was & 20,00,000. On 31st work had been completed and certified by the architects, The March, 2914 Match, 2014 on this project Costs ing amounted to Rs.16,00,000. It was estimated that angi t to be incurred further to complete the project. The contractee Paid 75% of is 4 work certified. Find out Profit to be taken to profit and loss account. Na Solution: Contract Price Less: Total Actual and Estimated costs : Mi Cost to date 16,00,000 Cost to be incurred 80,000 Total Estimated Profit 8 2 + 320 Since the contract is nearer completion, ie. cost of completion of remaining cost have been es therefore profit to be taken to Profit & Loss Account can be calculated using the following § = Total estimated prot » Work Certified Cash Received : Contract price ” Work Centified 18,00,000 13,50,000 = 3,20,009 x 18:0,000 , 13,50,000 20,00,000 * 18,00,000 = *2,16,000 Working Notes: @ Calculation of work certified i.e. 90% of the work, ce 20.00.00 = %18,00,000ad judes the profit Clement, int’ peing 75% of the aaa “Keene 5. «18,00,000 . i 13,50,000 ic 1st March 2014, SR Struct F ti 7 On rated price of & | 500,009, The cide 8 < ‘9014 and on that Aatethe acca ~ aber“ “ Inj “en. gto site semen ied mst ‘ta ew Ee icant) ios (ditional machinery % of esoFY Staff exclusively devo for = Spe pense assizned 10 the contragy tay ma ef S cerified upto 31 Dec, 2014 5 we completed but not yet Certifieg = Jott ‘ a on own plant is to be provigeg at the = ve wages: estimated value OL Mtl ong 2, a ‘ fe ¢work certified minus 20% Of retention om Toe a : : ‘one : required to prepare the Contrag, ‘Ccount s _ tyeamount 0 be included inthe “eit fiat. ! . Many’, i Stag 189 ' aa struction Lig % ontract Account Orth Yee als issued es 140,000. | ae \ og : 10000 | 154 \5 Matisse | 2a F : Cost Of Workinprogress cig. | >_ 0 at sent to site (at cost) eso. | eofplant : sof Supervision a ai Office Expenses | ast of Work-in-progress b/d | | By Working Ta Profit Value of Work Catted ~990n0 oft & Loss A/c 1,44,000 | Costof Work Unceied 89000) sano WIP (Reserve) A/c 126,000fit to be credited to Profit and Loss Account : work on contract has been certified therefore ean be calculated as follows : Agee Cash Received i ork Contied 2, 80 = 2,70,000«= «80 — 1 44 999 Sia 3 100 Exampe 4. ABC construction company Ltd. started its business on 1-4-2013, Followin, expenditure on the contract No. 1, it took on 1-4-2013 for® 10,00,000 for the year ending aay Materials purchased on contract 220 04) : Plant purchased and sent to contract site 44 Wages incurred 1 6,99 Other Expenses incurred 200%, Head office Expenses be Cash received on account up to 31-3-2014 amounted to € 4,80,000 being 80% of the Work Centif OF the material sent to site, materials worth Re 2,000 remained unaccounted. This was tea incertified was € 20,000 and materials costing & 10,400 were in hand on site. ‘harge 20% depreciation on plant and keep 1/3 of the notional profit in work-progress (Resery repare the necessary contract account from the above Particulars. This was the only Contract a pany undertook in the financial year 2013-14 7: \ [Brat Mtg ingens I profit) } ay a 1H nee | Seg | oe @ 3.209 | *Riaay Ay Loss a/¢ i Gall ny me ee ejaie P28 | Sey my | Ry f 8 een? i —— | | = | E | ' Bios: ; te ving of Value of Work Ce ‘ - i} ee ccnincl tak the ‘at a i, HY WN the wor itl Pt , as 6,00,000 h 4,80,000 9 a, * culation of profit to be take Cale 71 Prof nd , ‘ 7 f wark has been certifi, hence pofy 2m Sten y BW tue of Pre tle fr nt Ole (wl lated as follows: Prt adic ” calcula th Cash Received - National Profit Work Cetifed hy 80 3 00 X — = % 33,299 Since pe Contact follwing the come has been prov asa pnp f plant costing 8000s reat somalia 4, > Loss of plant c Wi,ing further information is ued as on 31st December, 2014 were : Wages 4,000 and Direct is provided to you: Expenses we epreciation on plant and machinery up to 31st Weaecoe _ ine 712,009 " in the¢ ies were : Wages & 6,000, Other f: ‘ Hira 500 ce ene es were Nags £6.00 “er Go eirterials at site on 3c December, 2014 cost € 25,000 ® Ttwas further certified that 20% of the work on control remained incomplete on 31St Deg # The total contract price was € 2,00,000 : i Id be taken into the accoun 's e contract aceount Porending S12 Bene outa respect ofthis conta the ee Solution: 5 Contract No. 13 Account for the year ending Dec. 31, 2014 Dr. Particulars Amt. (@) Particulars : To Materials By Sale of Serap Purchased ~ 90,000 By work in progress ; Sent from stores ~ 26,000 1.16000 Malu of Work Certified ~1,60,999 oo Cost of Work Uncertified 18.000 199 To Wages Paid 42,000 Add: Outstanding 40g ~ 46,000 By Materials at site “3 To Share of Administrative cost 20,000 By Plant on hand |) To Cost of Plant sent to site 60,000 (60,000 ~ 12,000) To Direct Expenses By Loss (WN ) 3 Paid 24,000 (transferred to P.& L A/e) Add: Outstanding ~2000 To Cost of Sub-contractingcasting Notes = ia ue of Work certifi. isa St we Mesroplote ™ other Riy, we ina i Wo, r alue of Work Sertifieg ne fou! v : the th wi © 2,00,000 = 160,099 100 en alue of Work y Certing Si av st of materials fe cos ‘Veg, our Cost oy, And 6, Or 6000+ 3,500 4 8,509 Sir; Suet Sti, - tract has g OWn a? * ing he contr Fe loss » a? e transferred tg Profit nd ia 64 De yn Ay 0g Progress Accouns “Soy AS, -in- ‘ : Shy, Xa ! ce rORTESS ACCOUNt ore te Sse kit?! er, for the erie ge init, Ne “ae piso added there thus, rote, Heong MN, . isalso add ql n 3 VF unt ofnotional prose trang etre "oe St io é : ‘ © are ely it can also Pe calcula 4 Ln a wag 1 eeativ : Co e the Wy ermal Value of work Certifieg 4 Ost of m a vey F N PFOBTESS accoyn CAN alsg 5 rey, wig. a : work Fas the total of Value Work cena “ Thing ~ lq sited wi ofnnotional profit Not *Tansferne pa Me oe ory tk hg, eportion Mang los Se erga oa ay, se york-in Progress A/o Dr. “cat in my Wo To Value work Certifieg SR To Cost of work “NCertifieg ° . . With the value of Work Certifieg ANd cose OF Work cei (Qu oe Dy: is Sontract A/c _— To work-in progress Reserve) a ioe f Work-in-progres KP intesen With the value o at q “cette an ok iy 0 ’ ssing the above ent, ie een ml an After pas Bod brought down coun Btlenceneyet rete be find a '0 contract account This proses yi ve peed a on te conta transfer es be ins incomplete a _ Sas shown in balance shes | -in-Progress as | Work-in | act h received from contrac re The cas steet as follows ©€ ON account js also ectcted. This, ‘an be stom ngLess : Cash received Work-in-progress The first method is usually adopted by accountants, ae Example 6. Using the information given in example 3, show how the work-in- ‘Progress wil] Appear} the balance sheet of SR construction Lid. : Solution: Work-in-progress : x Value of work certified 900,000 Cost of work uncertified ¢ 80,009 re Less : Working Progress (Reserve) 126,000 j —— . 80 8,54,000 | Less : Cash received ( Too * 270% ono) 720,000 : "34000wt é “Progress ; works nel rod till date eu stil profit taken to Pg LAle OF yl: a 5 cash eed (a i : pe son Curtin Co Pe = ! Hing ae meat in ~~ ue wrchased “tay oe os Me Machine PUCASEd forthe 5, if Machinery aM race wer yb Po an ie Nong Expenses (Fully Chart $ psoriee Expe }om contractee :. Bs a ae 1 20000 a ae me = = : pean a wore 16,009 and vin song fie cater a charged at 20%, Prepare Padi pie) as 10 be how ite sal Thee lo i cet ae ise act ge mekinrome. it a il Sate act Undertaken bythe omy i Sunny ¢ Ying pou Y Construction Company Lg Contract Account fg the yea Year ending Dec, uy My —_ Aunt. @)T Parag 7 ——— Bison Notts ——— SNaterials pure ag Labour ppDirect i MS relating tog vas the only conte ing this Was the only ming t {Anti BY Value Of ork ceritig 6.0}09) 150,000 | Cost for cet 2100 | agg b 10, 40,000 = — | By Maa omelet : ” | 000-46 \ Be rower ak ARH | By Machinery at sie 2M ae chinery (at cost)}-1,80, 0 | fre oe b ssow | s BE oer 2Ahoey | i. ec | By Balance bd (Notional 240000 TbProfit & Loss A/c ’ WBalance c/d (Reserve — eeContract No. Il: Material at Site Plant at Site Wages paid in Advance Work in Progress: Work Certified Work Uncertified Less : WIP (Reserve) Less ; Cash received from Contractee Contractee’s Account Dr. Particular Amt. (@) Particular Dee. 31, 2014 Dec. 31, 2014 To Balance c/d 4,80,000 By Bank 480,000 Jan. 11,2015 By Balance b/deol4 1 512" pleNe. | fie 00, Pil certified mM _ yor aS 20, Roof uncertified Eo we ra _ 3015 a b/d _—____—__ jause tio” I acontract Stipulates th ye jause ina ee ‘ath cong nen jaterial and labour bey, He F rio" rmaterial and lab rare eetin pa 1a cong je ces 0 ¢ uncertainty of material ang labour : rasa 1th, pF riod a a safeguard to the Contractor ae raga ecg vide a $2 0d of a ws rovi ae In other Words escalation clay rote ie 1 ee ae TeeMENt betien Ovid fy ie Beco ig ae ie tals and labour, Pats by te cna “yoo! ces of materials a 7M amount 6 me teen ner? Jause may be used to COmpensate fog increase Pin fo on cl S Spent over the ss in pei of labour hours sper © standards Stipul oa the Juantj lateg, SU8ntty Fm en tion clause may be used to BiV6 a rebate ; Se ond labour go down beyond q rial na tain percent {he conacee y cntag for contract and pass on the Advantage of RE. In such PBS contrac a ser arnount HONE rice fhe Contaceg, me se : jus Contracts P cost t plus contracts, the Contractor js cost as profit. The ami ited t0 as pntrag lated int of profit, ether as. g sot to the actual cost of work done qpeof contract is M eaaken by the =a aaa is difficult. This type of conten sinat This rely new nature, technolo ely 0 purpose of contractor are get Iculation of the amount of p Profit are agreed upon ina and audit bythe coniractee. fer the following advantages: lly subject to review Advantages : Cost-plus contracts of Tothe Contractor : () Itsaf cost ds t ntractor against the risk of fluctuation in prices of different elements of uards the contthis type of contract is most advan, of filing tenders and quotations pays a fair price for getting the work done as the price is amount or a percentage on it ‘of accounts of the contractor available for verification or audit by the PASC on at, to the Contractor no incentive for sum to improve the efficiency of the work done d amount on performance. If he is entitled a fixed percentage of pr. __ then he will not be rewarded for cost control and cost reduction as lower costs ale lower profits. feteh (ii) Market forces are not allowed to play for determination of the contract. The contrags. ; allowed to take the advantages of favorable market conditions. Ws Unless fit on, To the contractee (i) There is an element of uncertainty regarding the total price to be paid by him for the Gi) The contractee has to suffer and pay more for the inefficiency 0 : ; f the contractor. Then incentive for contactor to reduce costs. ‘sagagssent (0 site g 970, Bred *70,0q9 jnourt €eq ; k fd tosite qu ie ye atsite i! e ¢ ! +009 Be fed 2g, Sty certifies a (ay e gpaumcerified pe! : orkon contract commenced ory 1.009 My gg ge Depreciation on plant was gyn 2010S H certified every y Red at 209 ti Year and settle Me ber gatact. Prepare Contr the account F ed Tact acco, ACCOUNT helo 2012,2013 and 2014 ending oe COM, eg 8 gi "Bn Desens aig wie Sectrmett gition: “a a : | 970000 By Vitafapes ae ToPlant issue "000000 | Viketfed —engy Rages 830000) Workuneifed aan haan ToExpenses 40,000 By Platts (1000-20000 son | | By Mati at sie By Profit & Loss A (Lass 28,40,000_18,40,000 By Material at site By lant on hand (10,00,000 ~2,00 9 itn 70,10,000 To P&L A/c 11,04,000 By Notional Profit b/d To work in progress (Reserve A/c) 7,36,000 Contract Account for 2013 Particulars Amt. @) Particulars To Opening Balances : Work-in-progress : By work in progress A/c Work Certified _60,00,000 (Reserve) é Work Uncertified _90,000|60,90,000 By contractee’s A/c (Contract price) cn Plant at site 8,00,000 By plant returned (8,00,000— 80,000) ra Material at site 1,20,000 By Material return to store it To Materials sent to site 6,90,000 _ To Wages 6,00,000 To Expenses 30,000 To P& LA/c 11,36,000 '94,66,000\ ¢ . - 014 : a Be it Ale - nC J | Soom | a Work certified Work uncertified i. 12013 | | Sy 3 spBalance b/d | | a | | By Contacte foal | oa le By Contastaiy "se | ByBueeog | 1 Work certified tS 7 ork uncer | E Wo | 3 | JnLang fan. 1, 2014 | By Contact leastPrey ively, were ung commencedon Ist January and Ist July, 2014 respective etry tn 3 ape 2014 showed the following position: 72,000 i 1,10,000 Wages paid General charges oe Plant installed aa Materials on hand 4000 Wages accrued i Work certified 2,00,000 Cash received in respect thereof 150,000 Work done but not certified (at cost) 6,000 The plant was installed on the date of commencement of each contract; depreciations thereon to be taken 10% per annum. Prepare the Contract, Accounts in the tabular form and ascertain the Profit or loss to be take to Profit & Loss Account, ~~ (B.Com() Delhi Univ, 207) I) Solution : Sentinel ACCOR NPS Particulars Contract | Contract Particulars Contract ‘ontract 1(%) 1(%) 1%) Materials 72000 | “58,000 | Work-in-progrese Wages 110,000 J 1,12,000] Work Certified 2,00,000 Wages accrued 4,000 4,000) | Work Uncertified 6,000 8.000 General charges 4,000 2,800 | Materials in hand 4,000 | 4009 Plant installed 20,000 16000 | Plant at site (WN, To Notional profit e/d 18,000 By Loss transferred to Profit & Loss A/c (WN,) 228,000 | “192800 0 Profit & Loss A/c (WN,) 9,000 — | By Notional Profit b/d fo WIP (Reserve) A/c 9,000 18,000 — SSin oe FL FG LE a wan ne ion 3: M/S ABID Constructions ite i988 EASY O07 g ce, cect 1 bas Sow a8 os, te Cea and es Ne MS ee \ ee 4 ewe a, neem { (or MS eat de rte, = i oP \ = Normal prof 2 ta, M5 x Sth Ret Work Cait 718.000 2 50.00 ‘ 2,00.005 9,000 eco ASD rrr mr Direct Wages paid 1077 \ Site office cost io ‘Material retum to store ao] Work certified =~ | ‘Work uncertified i: a SS Prepaid ste office costason31-03-2014 ‘or Direct wages outstanding as on 31-03-2014 2 Material at site as on 31-03-2014 8 (@) A plant was purchased fr the contract t 8 8,00,000 on 1-12-2013 (b) Depreciation @ 15% per annum isto be charged. (©) Material costing ® 130,000 was destroyed by fie Prepare: | (i) Contract Account fo th year ended 31st March, 2014 ani compute proittobeihentote | Profit & Loss Account ii) Account of Contacte. Gi) Profit & Loss Account showing the elevnt items (iv) Balance sheet showing the relevant ems eee onBy Material returned to store By Profit & Loss A/e wages (Material Destroyed by fire) rasan By Work in-progress « ee —Work certified Less: Prepaid 500 | —Work uncertified To Depreciation (WN,) 4 | By Material at site To Notional Profit eld 1,650 B20 ‘To Profit & Loss A/c (WN,) 880 | By Notional Profit b/d To WIP (Reserve) A/c 7 1.650 (ii) Contractee’s Account Particulars Amoun % [Particulars Atom (%in*000) ing To Balance /d 10,120 | By Bank Ale Thi 10,120 ny (iii) Relevant items of Profit & Loss Account Particulars Amoun & [Particulars Amoune (in ‘000) in‘opp) To Contract A/c 130 (loss of material due to fire) To Net Profit 750.) By Contract A/c % 880_| (Profit on contract) 88 Working Note: 4 months wn Depreciation on plant=8,00,000 x 15% x ———— -z 40,000 12 months WN,> Calculation Of profit from the incomplete contract : Since more has been Certified, profit to be transferred to P& L A/c ont than 50% of the Contract price calculated as follows : his incomplete contract ean be . F = Notional profit x 2. Cash Received Work Certifieded 3 st if en ay ages day I) wie ny a i es ‘i exer hy pues ses Sa) gieot XPT Si ‘ig eed 500m) ia Nec ancerified om wad vo a seria at site 5009 TE cued Mou) 18m plat is ved from contractor S$, i ooh 2013 and2 3 Se atattic end of 2013 ana 2014 0 10h ts repeat Bee econ, ands) Contracts accor eh on re (2) fer to profit and loss accoun for transfer to prot fit for tran oft f f 252013 and "25204 thn pp, Mig ino esdertig 18.Com Diy Contract Account for2913 Unig) sito: :__ Particulai “pe Nisterials issued | Work certified Sisqo ToDirect wages Work uncerifed > gamp_ |, 754000 Bepaet expenses ByMaterialsatsite To Indirect €° ' ss)$,00,000 ’ 750,000 7 1,05,600 Contract Account For 2014 By Materia! at site 57,000 By Plant at site S009 6,65,600 By Contractee’s A/c “hoy 009 84,000 ~1,05,000 10,000 ~ 1,400 To Plant issued > 2,000 To Profit and Loss A/c 1,32,000 10,12,000 _ftoraae5 Contractee’s Account Particulars Amt) Particulars Amt @ 2013 To Balance c/d 6,00,000 By Bank 6,00,000 6,00,000 6,00,003 —— 00,000 2014 =a To Contract A/c 10,00,000 By Balance b/d 6,00,009 By Bank 4,00,000 10,00,000. 19,00,000 | Illustration 5, A co Contract reveal the tractor commenced a contract on | following information as on 3 1-3-2014, Jd -7-2013. The costing records concem lg Meet ly ttt i the saig20) tou to Engineer 14 3 « plant sent t0 site (72913 cost 5 supervisor (3/4 time o) so raion & other expen ag seed ‘administration expenses ey pre? in hand at site as on 37 ct 32014 2g ing 9 te commrgek san estimated "ane el costing © 13,500 was 4, Sg Siig gg He, On 313-204 1 hd yi Asay i “a jt conae price and Contractor hag Ma i lay ‘fis i pie and en wg fre basis, Prepere Contec! Sea Pea fo ite Mi bon (cy ag Fpenicals i | Material Issued | qo Labour ’ | aid 10; | fat 0 sie ial © wis od ding as on 3 ato outstan 13g Add ; Outstanding 02 qo Salary £0 engineer (20,500 x g) so Salary to Supervisor p 000* 7 *9) qo Administration & other expenses Paid 4,60,600 ess : Prepaid 10,000 Jo Depreciation on Plant (WN) By Cost of contract c/d Jo Notional profit b/d To P&L A/c (WN,) To WIP (Reserve) A/c 00 1,60,178 | 11010 BY Workin Progr Work certted (3% of 45on0m “ork unceitd cwyy °2633.600 — 979740 By Notional Proft bairred on 2/3 completion of contract = % 26,39,600 (as calculated in contract account) fcompletion of full contract = 3/2 x % 26,39,600 =& 39,59,400 - Cost of work uncertified = Cost incurred to date minus 50% of the total cost of contract =26,39,600—% 19,79,700 = 6,59,900 WN,> Calculation of Profit to be transferred to profit and loss account 20,00,000 2 5 *2,70,300 x 3 > 22,50,000 = 1,60,178 Mlustration 6, 4 contractor, who prepares his account on December 31 every year, commenced a Contract 14.2014. The costing records telating to the said contract reveal following information on 31.12.2014, * Material charged to Site %2,58,100 Direct Labour Foreman’s Salary %5,60,500 [B.Com (AL) Dethi Univ, 294ve lary (WN,) 5 e F gion of Pant (WN,) mot” trative and other expenses fit ewip bid a Fal profit cfd i z pe # peserve) Ale votes : rit pee supervisor sé \ 2, Depreciation of Plant = no DP neurred during, we cos culation nor caleulat Cost O€ Full Contract = 10,49, 090 Cost of Work certified (50% of the ost tq 86,750 contrat) Cost of Uncertified Work Cost of WIP~ Cos of = 10;49,000 - 7,867 cr ei %2,62,250 an Wi Calculation of profit to be completed, Profit to be trans ansfered fo PAL Ae; sn L Al; since 50% work ow 0 profit & Loss Ae canbe alee can be caeuated as all ; — = % $3,313Plant less Depreciation (2,60,000— 14,000) = Less: Sold Contractee’s A/C 31-12-2014 7,50,000, By Bank 7,50,000 ee IMustration 7. ABC Co Limited has undertaken a contract for %2,00,000 on April 1, 2012, Prep E account and the balance sheet in T format from the trial balance and the adjustment given belo, a The Trial Balance as on March 31,2013 Particulars Dr Amount Share Capital Cash received on contract (80% of work certified Plant and Tools 12,200 Material sent to site 44250 Labour charges 56,180 Land and Building 25,000 Sundary Creditors a General Expenses 4,650 Cash in Hand 2,100 Total 144380 Tn Material returned to store is € 2,125. Of the plant and tools sent to site, plant worth % 1,300 wero dy arelessness of the staff. The value of the plant and tools as on 31-03-2013 was ® 8,000, Reserve 1/3 of rofit. The work completed but not certified is € 6,145. Assume that this was the only. onan wring 2012-2013. [B.Com(H), Delhi Uni Mn& a By cAe iy ay | 155 By ppg \crl | ‘a ‘t yssNe032529)] eg hay a Xa sess Reserve) §4G9 Poy 1 | 25299 | oe — 8 Balance Sg a) ee She t pies cS Shag — 16,860~ | 1300~ | eitors | ial St Unceritg asm) =i | -8S-Resene Bins Ae) Less, Cash, Dig > ae BA a eos) ye Capital (Shares of 10 each) bLA‘con Ist January pision for Depreciation on Machinery wh id on A/c (Contract No. 7) ers undand Building (Cost)8,30,000 40,000 1,60,000 18,01,000 Peale a 2014. The contract price is % 24.00,000 and the a D being 80% of the work certified. The cost of work done since ¢ ef, 2014, after the above trial balance was extracted, the mae! ine d to store and material then on site was valued at & 27,000. Provision is wn? nery at 12.5% on cost. d to prepare the Contract A/c and the Balance Sheet of the company as on 31st D was the only contract in hand during the period. [B.Com(H), Dethy Uni, Contract No. 7 Account Amt.(% | Particulars To Materials 6,00,000 By Work-in-progress: To Direct Labour 830,000 | Certified 100 To Expenses 40000} 12,80,000% 16,00,000 Uncertified 16,000 To Machinery sent to site 1,60,000 | By Machinery retuned 2009 To Provision for Dep. on M/cyA/e | 20,000 | By Materials at site (12.5% of 1,60,000) By Machinery at site To Notional Profit c/d 1,53,000 03,000 By Notional Profit b/d To Profit & Loss A/c (WN,) To Work in progress (Reserve) Balance Sheet as on 31-12-2014 Capital & Liabilities | Assets 2 Share Capital 3,51,800 Bank 45,000 P&L Alc (WN,) 1,00,100 | Land and Building 74,000 Provision for Depreciation (WN,)| 89,500 | Machinery in store 94,000transferred to P & LA‘ fro than 50% of the contract Price hi teu contract No.7 more as be sipincomP te contract can be calculated as pmcills Profit tobe tasfened PRLAcon ox 153,000. 81,609 wh a ___Profitand Loss ave ——~~ Particula | An z Q To Bal. b/d 400,100] 50 7 BycontactNo.7 | ay 1,06,600 | Pe |_| 5 | 196600 Provison for Dep.on Miey Al cr SS ——____ ae Particulars | Amount@)] Dawe Pariculars Amount) To Bal. cid 89.500] Jan.1,2014 ByBal. ba 63,000 | Dee312014 By contact No.7 20000 Dec.31,2014 ByP&LAle | 6500 | (12:5%0n%52,000) = a ss la BE ons following expenditure on account of contract on Ilustration 9. T : December 31, 2014 ae Materials issued to Contract ae 70,000a ‘Sundry Expenses Vs, Establi ae P 19 fidairact Sc a January 1, 2014 and the contract price was x 10,00,009,, 09 bi to was € 480,000 representing 80% of work certified, remaining 29%, ME Craton Bicester si 20le ue ¢ 20,000 and the value of mate st of work finished but not certified till the said date was % 50,000, wae The cos the materials costing & 20,000 were found unsuitable and were sold for & 16, " fret 5,000 was sold ata profit of 1,000. The contractor estimated a tunic” ent Bo be incurred in completing the contract and took to the credit of P & L Alc for the yesPen ever ‘ion of estimated net profit on contract which the value of work certified bears to th This is to be further reduced by proportion of cash received that bears to it follows: ’ further expenditure were as a , (That the contract would be completed by June 30, (ii) on completion of the contract would be & 12,000. That materials in addition to that in han: expenses of ® 7,000 would be incurred. That the further wages for the completion of contract would amount to 169,900, () That the establishment charges would cost the same amount p (That & 18,000 would be sufficient to provide for contingencies. Prepare contract account forthe year ended on December 31,2014 and show the amount to be er, LAle forthe year. Also show the relevant figures that would appear in the Balance Sheet on ‘Thata further sum of & 30,000 would have to be spent on the plant and the residua) Value op al lbp Gi) 1d on 31.12.2014 would cost 10,00 andi wv) er Year as inthe previoug a cited that dag [B.Com (Hons) Deh Univ, 9 Solution : MSxyZ Contract Account (For the year ending on Dec. 31,2014) Particulars I Amount | Particulars To Materiais By Work-in-Progress A To Wages 93,000 | Certified To Sundry Expenses 15,000 | Uncertified To Establishment Charges 10000 | By Materials Sold A/e (Cost) To Plant 70000 | By Plant Sold Ale (Cost) 'o Notional profit cid 1,03,000 | By Plant in hand By Materials in hand 7,01,000 0 Profit & Loss A/c 52,368 | | 9 WIP (Reserve) ie 22) 105,000 | By Notions) profit b/d 1,03,000 | St aa Se| Estimated Profit, fe contrat til date (ey ay be arges + Plant) ~ (GP ore it nd Ms ily °.000 + a9 Coq wa, “900 = © 5.47,000 000) 0. 1,000 = 85 , en, ‘Mea oa on the contract tll daye e “eo “98 red timated Expenditure: ay 7 im est i$ ys y 'Séy ” enseS : ; ‘ Expense _ 4 iy it r Fe 30.000 ~ 12,000 ‘4 #0? 50,000 + 1,00,000) 5.009 att 6,000 + I 38.009 weer Hy ‘ay s ntingen $8.94 BF on for et (5,47,000 + 3.43,990) Ip ot: (1900009. 8.90 5¢0 ae eee ee Sees rot 10 be taken 0 prof & tg Son aiapy or 108 ation "22914 joulat Work Certitieg Cash Receive i: estimated profit x Price “Wotea otal Es xe 752,368 000 100 Material Soid aie Amount(%) Date Particulars 20,000 | “3 1-12-20) Amount 4 By Cash (Sele) Scrip 16.000 ByP&Lac 4,000 En I . ee ae Se Pant Saae a —— a Amout(%) | Date Particulars Amout(®), , Partie 5,000 | 31-12-2014 By Cash (Sale) E—pi4 To Contract |: se 12-2 ToP& LA/C Besa, tan Se. — ee938 Alternatively total estimated profit can be calculated as follow : Expenditure ncured til date: Work certified Less Notional profit Add further estimated expense Total estimated cost Total estimated profit (10,00,000 - 8,90,900) Balance Sheet (Relevant) As on 31, 12.2014 Liabilities Amount(%) | Assets Reserve and surpluses: Work-in-Progress: Profit on the contract 52,368 Work Certified Less : Loss on sale of Material 4,000 Work Uncertified 48,368 Add. Profit on sale of Plant 1,000 49,368 Less: Reserve Less; Cash Received Materials in Hand Plant in Hand Mlustration 10. The. Contract price was ¥ 39,37,500. Actual expenditure for the Period 01.1) 2013 and estimated for the Period 01.11.2014 to 31,3.20] Sis given below: (031) November, 2013, 0 October 31,2014 Actual & Materials Issued Lal 6,75,000 our: Paid 4,50,000, Prepaid 25,000 | ao Outstanding Ee 4 Plant Purchased 3,75,000 4 Expenses: Paid 2,00,000 B Outstanding “50,000 35g Plant retums to store (on 31-03-2014) 75,000 3g OnOct.31,2014 rs Work certified 20,00,000 Snvich Work uncertified "75,000 a -ash received 17,50,000 2 Materials at site ‘75,000 osy- si + to annual depreciag, per s woh 31,2015, ae rei vo Portion o¢ v8 cides ig eed LAK SStimare to ‘ ant contract Aj, Oro yr ath purchases pst Paid outstanding 2 profit c/d a : i "Oa } Com oe te eo “O59 Ue py ey 3.09, L ee ‘a 24. 1a Sy 244587) ) 148,580 grand Loss A/c (WN,) [is | "Net ng A p Reserve A/c — | 9.595 = 9, ing Notes: f , BE fant Retumed on 31.48.2914 mn on pl Depreciation "ons = "50505 Gey ‘un, 00,000 x ( > (S10) tame epreciation on Plant at s et Deagsciticn ee ae 1140 March 31,2015) ( cost a timated cos Total Est 5 id Profit onthe contract ‘abe completed) 325 € upto Oct. 31,2014 eure incurred til date (i.e up al 0000 1(6.75,000 ~ 75,000) om i. 50,000 ~ 25,000) xm es n plant (10,417+1,00,000) i on on pl ze 00, 000) Expenses (2,00, : 4 |Esimated expenditu a a Material (75,000+12,375,90,000 Labour (25,000+5,62,500+2,500) st Depreciation (WN,) @ bo ~ 50,000+25,000) Bemis (Actual + Estimated) i Estimated Profit (39,37,500 — 36,03,195) a a ion of profit to be transfered to P & L A/c as on 31-10- WN, Calculati Work Certified Cash Received a comes “Wok Certified 20,00,000 17,50,000 Be 55371500" 20, 00,000 = €1,48,580 ic il 1, 2013. The total cong ic Bs Construction Ltd, commenced a contract on April 3 Tact ian 1 one to estimate the total Profit and to take to the credit of profit and loss Ae proportion of estimated Profit on cash basis which work completed bear to the total contract. Actual expen a in2013-14 andestimated expenditure in 2014-15 are given below: 2013-14 20a Actual (%) Estimated @) Material issued eee 814,069 Pat 3,05,000 3.80009 ‘Outstanding at end 24,000 37.5 Plant purchased 225,000 ’ Expenses: Paid 1,00,000 175.¢q9 ‘Outstanding at the end ty Prepaid at the end 22,500 2 Plant returned to stores at historical cost) 75,000 150009 (Dee.31,2014 Material at site 30,000 75009 Work-in progress certified 12,75,000 Fil Work-in-progress uncertified 40,000 es Cash received 10,00,000 Full i lant is subject to annual depreciation @ 20% of WoVv a t. The Y 10 comping Eerie @ 20% o Cost The contract is likely yo completed on uired: Prepare the Contract Ale for the year 2013-14 Estimate the to PIL Alc, Profit on the Contract for the Year 2013-14 on Prudent basis which has to be credit, d itePQR Constratg 541 (April 1 sa cok » 2013 to March S20 ) Amt 456000 | 2 mI ye "TELS oe By Mat ) 329,000. |By wort Site 00 225000 | ye ttitPOers: wenceted Sat Uncertteg 129son0| % 71500 |B Panat si SB) hn agian | > SteGiny 15225000 12000 159263 —— tem By Notional Profitbid 1325000 4750 fl ee 437500 e: r wt Notes: = __vatu ofthe Plant returned Soren SL g W877 sorical Cost ofthe Plant retuned a ess Depreciation @ 20% ‘of WDV for one year 75000 15,000, wr value of Plant at Site31.3.2014 on 1 istorical Cost of Plant at Site Less Depreciation @ 20% on WY for one year aa Tan Value of Plant returned to Stores on 31.12. 2014 130000 wn WN, ?Computation of tot! estimated Value of Plant (WDY) on 31.3204 Less: Depreciation @ 20% so 4 of WDV fora period of 9 months 1,020 profit on the fll contract DBDMarch 31.2014 for the: Contract likely to) 31,2014 WorkCertified Cash Received Ege Teal Connect Price” Work Cenified 12,75,000 _ 10,00,000 = ii2,500 “a js-aoq ~*1.59.263 er 27,12,500 — 12,75,000 Mlustration 12, From the fol Contract which has 80 perce t ts Mowing particulars compute a Conservative estimate of profit by4 Mead nt complete To xpenditure to date » Estimate further ex Penditure to complete the contract in Contract Price S304 Work Certified 1 1a Work not Certified Cash received (CA, IPE Noy Ur Solution : Working Notes : @) Caleulation of Notional Profit = (Work certifi ied + work not ce =% (10,00, 000 + 85,000) — g (ii) Mified) ~ Tota) expendi oda 50,000 =x 2,35,000 Calculation of Estimated Profit = Contract Price — (Ex, itate ive Estimat ative Estimate yp Proj conse es a "ng o = if fit = =z 235, Motion PIE 5 * 22.35 9 ae “ha, xn "66 Cash receiveg rofit x ae potional P work certified 3 ce sale Se aS Son, th ; Work Centfieg S nated Profit «Contract Price st Cost of work done BS Estimated tor) Cost ® Cen 8,350,000 510,000 * 650.000 +o * .4 Profit * nate pst Cost of work done ged POR tel total cn pstimat “ 5 aservative Profit is % 1,274 or ost 727,840 ak “Stoo ia 0 therefore Prof 1B Constructions Limited has ent s na = . al and lab ‘Seine A mn clause for material and jg otrage et Yorn escalation "HO bec S090 Fpiovs mPa nay sf wae] Standard é si sg J Quantity Rater Acta yan: (Tonnes) Tome | Qeantiy % | | 350 | va Ki “a 3 | ae ours | url Rate pe, “7 | ® | @ Va soaay |) 1S | 55009 in | 40,000 30 | e000 45 is ofan alin in lee tract account, if the all are the con fi) Prep: pens other than mat and lho ata th contract are & 13,45,000 (CA, PCC ayA 3,000 B 2,400 c 500 D 100 30,000 1,000 800 4,000 ‘Statement showing additional claim due to escalation clause, ~ P a, showing additional claim for material due to escalation @ Std. Rate | Actual Rate 1,100 700 3,900 31,500 Clause: Variation in Rate @=(~p Material escalation claim labour due to escalation claus, Std. Std. Rate | Actual Rate Variation in Hours Rate @) L, 60,000 15 ue i 40,000 30 35 Labour escalation cl ‘Statement showing Final Contract Price Agreed contract price Add’ Agreed escalation claim: Material Cost Labour Cost Final Contract Price (ii) Contract Account Dr oP s To Material. a A~3,400 «1,100 By Contractee’s A/c B—2300x%700 | 155,400 C—600 «23,900 | D— 90 x & 31,500 | 1,05,25,000 To Labour; | L,-56,000 «18 L,~38,000 x %35, 23,38,000 To Other expenses 13,45,000 To _Profit and Loss A/c 13,32.000 | 1 -55,40,000 [1ss0mnpTICAL QUEST 8 y jow does contract COSting «i dicate HOW YOU Would en ; plant and machinery 5 cia Y Loss of materials Stolen \ G Sub-contracting BC Hess commonly accepiey me ‘ony OU Would as, 7 My, tate how y scertai, on ling 4 Fen to Profit and Logs Accounss tag 2 o Mp ‘Of % “a tee How is progress payment due a g a le, RON Bee en eo ogee Wy, ‘ey Cd Hh mH tn a tite ne nal of fs Py “ Explain the COnceD' of esc he Wey Re, advantage of may, ion the man advantage of be is 9, Mentio Ost py mi "iy a Bey i Explain the terms notions pray "eg Cla gy oe a, “hy Diss the methods of calelng 8 prof ga ing (@ The work on the contract hag a nthe ane “ tin md 1 (b) The work on the contrac ie Teasonaby (©) The work is nearer completion (Bony pRACTICAL QUESTIONS Dl ey A contractor has obtained a contrat fre Onstage lakh, and the work commenced om It Jay, 204 The lone iemasty for the year ended 31st Dec., 2 ‘homie ta t Plant purchased a Wages paid ie“Materials issued to site Direct Expenses * = General Overheads allocated Wages accrued as on 31.12.2014 Materials at site as on 31.12.2014 Direct Expenses accrued as on 31.12.2014 Work not yet Certified at cost Cash Received being 80% of Work Certified Life on plant purchased is 5 years and scrap value is nil. (1) Prepare the contract account for the year ended 31st Dec., 2014, (2) Show the amount of profit on the contract which you consider might be funy and loss account and how you have calculated it. "hen [Ans.: Profit taken p & 2. From the following particulars relating to a contract, prepare (a) oui Un (b) Contractee’s Account and also show how work-in-progress will appear in the Bila Aes, _ 31.12.2014. Shes Materials sent to site 4 Labour engaged on site By Plant installed at cost yy Direct Expenses 1 | Establishment Charges 4 Materials returned to store Nig © Work Certified % Coat of Work not yet Certified 13849 Materials on hand as at 31.12.2014 Soy Wages accrued on 31.12.2014 Uy Direct Expeediture accrued on 31.12.2014 Uy w Value of Plant as on 31.12.2014 The contract price had been agreed at 2,50,000. Cash had been received from thes ‘i , to 1,80,000, i) [Ans. : Notional Profit : % 28,275: Profit credit % 17,400; WLP. to be shown The following details are available from the books of accounts of a contractor particular construction work for the year ended 3 1st March, 2014: ed 10 Pa Ly, Bs: tay With respect gg q Contract price 9100, Cash received from contractee (90% of work certified) wat Material sent to site Re 82,600y “ slits «on estimation cog oe i r ee, aad at site on pi amet expenses i 1 rd to stores pat gl rou : ty pat! ffice EXPENSES apportion 2M reek uncerified ey ye work ‘nh cost rat March, 2014: lage on ri site 2 at \ Mi ed direct wages ag Ae od direct Expenses AP 7 ; e ofplant (as revalued) % vale pei ay he Contract account fey, Thy at tl Shea ta : ff gqow the relevant Balance Shoo entries Is, Ma fa ‘at g information relate Wes toes (hp following it Stoaby Tan, EI, the nig i “Lt ned ts) Ti, lg perils iss 30869 rect W282 2 i ) ject expenses 20g ‘be direct expenses 649, uy ork certified 73000) lg irk uncertified 80g oo peril at site S09 - jet issued 14p00 7 sshreceived from contractor 605 eel 00 Mia ave of plant atthe end of 2013 and 2014 "T7002 Steps (a) contract account; and (b) contract, “ott oye my Bier taisfer to prof ant 1s acount 50 tik ge Mii } (B.Com ton) De nei) (Ans. : Notional Profit 2013. #1 98,600. Proft credited P&L Ae 7105600 edtedto P&L Aina: 2014 after considering Contingencies (/ CWA Inter Dec 1998) [Ans. : Notional Profit : = 71,50,000Profit credited to P &L Ale % 50,00,000;Total estimated Profit ont the contract is % 60, 00,000 W.LP. to be Shown in Bis : % 60,00,000) 10. MNP Construction Ltd, commenced a contract on April ity 2013. The total Contract was fo , : ‘0 take to the credit of P/L Alc th Proportion of estimated profit on cash basis, which work completed bore to the total contrac Actual expenditure in 2013-2014 and estimated expenditure in 2014-2015 are given below :9s cost wo 2013-20142 014-2015 4 aa lied issue 3a ® etl?” paid 00,000 5,50,000 Mats: Futstandins at end 20/000 250,000 ee grenased 20,000 30,000 ost puch 150,000 = repo" prepaid end. a 150,000 ¥ store historical cost) " = plant rerurned to a st) 0,000 1,00,000 ite (on December ‘31, 2000) moter sie, 20,000 50,000 Work certifi 8,00,000 ull rk certified 25,000 a cast received 6,00,000 Full plant js subject tO annual depreciation @ 25% of WDV Cost. ‘The contract is likely t© be ¢ ip! eted OF December 31, 2000. Prepare the Contract A/c. Determine the profit on og ct for th year 1999-2000 on prudent ‘basis, which has to be credited to PLAC oo [C.A, Inter May 2! Notional Profit * 72.27,500, Profit eredited 1 P & ave : €66,321 000:T0 estimate profit on the coneraet 93,438 aol