No.1 for CAICWA & MEC/CEC MASTER MINDS 7. CONTRACT COSTING NO. OF PROBLEMS IN 39E OF CA INTER: CLASSROOM - 15, ASSIGNMENT - 18 NO. OF PROBLEMS IN 40E OF CA INTER: CLASSROOM - 14, ASSIGNMENT - 19 NO. OF PROBLEMS IN 41E OF CA INTER: CLASSROOM - 14, ASSIGNMENT - 21 ERM ae ae Da etl |v) M3) 5) 2] ololelo/e|.|F/Z/S/= No. MODEL NAME | 10 |$/S] 1 /E/F/S/el/slslElslelslels 3) 02/2] 0/2] 2/2/2/2/2/ 2/2/28 /2/2/8 PREPARATION OF CONTRACT +. account elPel | eee eet td iersys 7, [PROFIT LOSS ONINCOWPLETE| ® |||, | -|-T-T-|-|-}sl-|-|-]- CONTRACTS 3, [caLcuLaTion oF estmaTeD| | |_1.|.|-|-|-lel-|-1-1-|-|.1.|. PROFIT 7, [CONTRACTS WTHESCALATION| || — -|-]-T-T-[-T-F-7-F-]-7- CLAUSE Pea tr Problem No.in | Problem No.in | Problem No.in | Proble pp | amp | Previous | pemarke this material NEW SM OL st o1 Exams RT zi M8 cR2 zi © N18 (N) cR3 m6 5 CRA Nie CRS ~ = CRE : 108 CRT m3 CRs Paz CRS = GR 10 Pad CRI R12 : R13 zi CRM U7 ‘ASG T ia ‘ASG 2 ‘ASG 3 ‘ASG 4 ‘ASG 5 ASG 6 ‘ASGT ASG 8 ‘ASG 9 ‘ASG 10 ASG 11 ASG 12 ASG 13 ASG 14 ASG 15 ASG 16 CA Inter_41e_Costing (P)_Contract Costing. 7198851 25025/26 ASG 17 ASG 18 ASG 19 ‘ASG 20 ‘ASG 21 Contract costing is a form of specific order costing where job undertaken is relatively large and normally takes period longer than a year to be getting completed. Contract costing is usually adopted by the contractors engaged in the task of executing Civil Contracts. A contract takes longer period to complete and the result of the contract can be known only after the completion of the contract. If the profit on such contracts is calculated only after their completion, then wide fluctuations may be noted in the profit figures of contractors from year to year. The profit in respect of each contract in progress is transferred to the costing profit and loss account of the year by calculating the notional profit. The portion of notional profit to be transferred to the costing profit and loss account depends on the stage of completion of a contract. Contract costing have the following distinct features: 1. The major part of the work in connection with each contract is ordinarily carried out at the site of the contract. The bulk of the expenses incurred by the contractor are considered as direct. The indirect expenses mostly consist of office expenses of the yards, stores and works. A separate account is usually maintained for each contract, The number of contracts undertaken by a contractor at a time is usually few. The cost unit in contract costing is the contract itself. Profit or Loss on Incomplete Contracts: 1. If % of completion of contract is < 25% - NIL PO RON Cash received 2. If % of completion of contract is = 25% to < 50% ~ 1/3 x Notional Pr ofit x Work certified 3. if %of completion of contract is > 50% to < 90% ~ 2/3 x Notional Pr ofit x Ca8h received Work certfied 4. If % of completion of contract is 2 90% and above - based on estimated profit If contract is completed 90% & above then Work Certified Contract Price Based on Estimated Profi 1. Estimated Profit x Work Certified , Cash Received Contract Price ~ Work Certified Cost to date Total Cost of Contract 2. “*Estimated Profit x 3. Estimated Profit x Cost to date Cash Received 4. Estimated Profit x —_Cest date _ " Total Cost of Contract * Werk Certified (this formula may be preferably used in the absence of estimated profit figure) Work Certified Notional Pr ofit x <9 SESE Contract price ** It is preferable to use formula (2) in the absence of specific instructions. Estimated Profit = Contract Price -Estimated total cost CA Inter_41e_Costing (P)_Contract Costing. 7.2No.1 for CAICWA & MECICEC MASTER MINDS Estimated total cost = Cost to date + Estimated Further cost to be incurred to complete the contract Notional profit, = Work Certified + Work Uncertified - Total cost of contract Notional Profit = Work Certified - Cost of Work Certified Cost work Certified = Cost incurred up-to-date - Work uncertified Work Certified = Notional Profit + Cost of work Certified. Work Certified Contract price % of Degree of completior Journal Entry for escalation clause Contractee Alo Dr 2x To Contract a/c Xxx Journal Entry on completion of contract Contractee Alo Dr 20x To Contract a/c 2x The rules in respect of Profits and Losses to be recognised on Contracts is summarised below: Combination Current Yr | Estimated Notional Profit | Estimated Profit | Profit : Profit Notional Profit should be recognised based on degree Pé?sentage of Completion. Situation Treatment Notional Profit |Estimated Loss |Profit: Loss | Esti Hoss is provided in the current year. Notional Loss [Estimated Profit|Loss : Profit _|N Loss is provided Notional Loss | Estimated Loss |Loss : Loss inal Loss or Estimated Loss, Whichever is worse her), is to be provided in the current year. MODEL 1: PREPARATION OF CONTRACT ACCOUNT PROBLEM 4: XYZ Construction Company took a contract for construction of a stadium on 1* April, 2017 ata price of Rs. 160 lakhs. The relevant information for the year ended 31° March, 2018 are as under: ‘Amount (Rs. in 000) Materials purchased for the contract 6,800 Direct wages paid 3,450 Salaries 200 Direct wages prepaid at the end of the year 50 Salaries outstanding at the end of the year 100 Material returned to store 150 Material at site as on 31 March, 2018 475 Payment received from a contractee (80% of work certified) 9,440 Work done but not certified 500 A plant purchased for Rs.12,00,000 on 1 November, 2017 and was in use at the site up to 31% March, 2018. Depreciation is to be charged on plant @ 15% per annum on straight line basis. Material costing Rs. 50,000 was stolen from the site CA Inter_41e_Costing (P)_Contract Costing. 7.38851 25025/26 www.mastermindsin com You are required to: i) Prepare contract account for the year ended 31 March, 2018 showing the profit to be taken to Profit & Loss Account. ii) Prepare Balance Sheet showing the relevant items. (A) (t18(N) - 10M) (ANS.: NOTIONAL PROFIT = 2,100) (SOLVE PROBLEM NO 1,2 OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM 2: M/s. SD Private Limited commenced a contract on 1% July 2017 and the company loses its account for the year on 31” March every year. The following information relates to the contract as on 31" March 2018, i) Material issued Rs.9,48,000 ii) Direct wages Rs.4,57,200 ili) Prepaid direct wages as on 31.3.2018 Rs.1,08,000 iv) Administration charges Rs.7,20,000 v) A supervisor, who is paid Rs.50,000 per month has devoted two- third of his time to this contract. vi) A plant costing Rs.7,85,270 has been on the site for 185 days, its working life is estimated at 9 years and its scrap value is Rs.75,000. The contract price is Rs. 42 lakhs. On 31" March 2018 two-third of the contract was completed. The Architect issued certificate covering 50% of the contract price and the contractor had been paid Rs.15.75 lakhs on account Assuming 365 days in a year. You are required to: i) Prepare a Contract Account showing work cost Calculate Notional Profit or Loss as on 31% March 2018. (A) (N18 (N)- 5M) (SOLVE PROBLEM NO 3, 4, 5 OF ASSIGNMENT PROBLEMS AS REWORK) Note: MODEL 2: PROFIT / LOSS ON INCOMPLETE CONTRACTS PROBLEM 3: M/s. Bansals Construction Company Ltd. took a contract for Rs. 60,00,000 expected to be completed in three years. The following particulars relating to the contract are available: Particulars 2017 (Rs) | 2012 (Rs) | 2013 (Rs) Materials 6,75,000 10,50,000, 9,00,000 Wages 6,20,000 9,00,000, 7,50,000 Cartage 30,000 90,000) 75,000, Other expenses 30,000 75,000) 24,000. Cumulative work certified 13,50,000] _45,00,000| _60,00,000 ‘Cumulative work uncertified 15,000 75,000) = Plant costing Rs. 3,00,000 was bought at the commencement of the contract. Depreciation was to be charged at 25% per annum, on the written down value method. The contractee pays75% of the value of work certified as and when certified, and makes the final payment on completion of the contract. You are required to make a contract account and contractee account as they would appear in each of the three years. Also show how the work-in-progress and other items should appear in the balance sheet (©) (NEW SM, OLD SM) (ANS.: 2011: LOSS TRANSFERRED TO COSTING P&L A/C: RS. 65,000; 2012: NOTIONAL PROFIT: RS.10,38,750; 2013- PROFIT ‘TRANSFERRED TO COSTING P & L A/C-1,83,187) (SOLVE PROBLEM NO 6 OF ASSIGNMENT PROBLEMS AS REWORK) CA Inter_41e_Costing (P)_Contract Costing. 74No.1 for CAICWA & MECICEC MASTER MINDS PROBLEM 4: (PRINTED SOLUTION AVAILABLE) obtained a contract no.999 for Rs. 50 lacs. The following details are available in respect of this contract for the year ended march 31, 2014: Rs. Materials purchased 1,60,000 Material issued from stores 5,00,000 Wages & salaries paid 7,00,000 Drawings and maps 60,000 ‘Sundry expenses 15,000 Electricity charges 25,000 Plant hair expenses 60,000 ‘Sub-contract cost 20,000 Material retumed to stores 30,000 Material retuned to suppliers 20,000 The following balance relating to the contract no.999 for the year ended on March 31, 2013 and march 31, 2014 are available Particulars As on 31st March, 2013 As on 31st March, 2014 Work cerlified 12,00,000 35,00,000 Work uncertified 20,000 40,000 Material at site C00 30,000 Wages outstanding S,000 20,000 The contractor receives 75% of work certified in (A) (114 - 8M) (ANS.: NOTIONAL PROFIT = 8,35,000) (SOY Note: (Ware contract account and Contractee, ILEM NO 7, 8, 9 OF ASSIGNMENT PROBLEMS AS REWORK) PROBLEM 5: (PRINTED SOLUTION AVAILABLE) The following details have been extracted from the books of DKG Construction LLP, which closes its books on 31st March every year. Particulars Contract 101 Contract 102 Date of commencement Ast April, 2015 7 December,2015 Expected date completion 31" September,2016 | 31" December.2016 ‘Amount (Rs.000) ‘Amount (Rs.000) Contract Price 4,000 4,100 Material issued to construction site 1,400 300. Material retumed to store 760 60 Plant& Machinery sent to construction site 2,000 300 Inter-Contract material transfer (60) 80 Materials at site on 31 March,2016 150) 30 Plant hire charges 400 60 ‘Wages paid to workers: 600 540) (Overhead apportioned 150 36) (Other direct expenses 50 8 Value of work certified 3,000 750) Cost of work not certified 320 40 Progress payment received from contractees 2,880 700 Estimated cost of completion 270 220 Depreciation is charged on plant and machinery @ 15% p.a. using straight line method, CA Inter_41e_Costing (P)_Contract Costing. 758851 25025/26 www.mastermindsindia.com Required: Prepare contract account for each contract using columnar format, showing Cost of work certified and Notional profit / loss on each contract. (oy RTP M7) (ANS: COST OF WORK CERTIFIED : 2,190, 909; NOTIONAL PROFIT / LOSS: 810, (159) FOR CONTRACT 101,102 RESPECTIVELY) (SOLVE PROBLEM NO 10, 11 OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM 6: A contract is estimated to be 80% complete in its first year of construction as certified. The contractee pays 75% of value of work certified, as and when certified and makes the final payment on the completion of contract. Following information is available for the first year: Particulars Amt (Rs.) Cost of work - in - progress uncertified 8,000 Profit transferred to costing Profit & Loss A/c at the end of year | on incomplete contract 60,000 Cost of work to date 88,000 Calculate the value of work - in - Progress certified and amount of contract price. (A) (OLD PM, M09 - 8M) (ANS.: WORK IN PROGRESS CERTIFIED 2,00,000, CONTRACT PRICE 2,60,000) (SOLVE PROBLEM NO 12 OF ASSIGNMENT PROBLEMS AS REWORK) Note: MODEL 3: CALCULATION OF ESTIMATED PROFIT PROBLEM 7: Compute a Conservative estimate on a contract (which has been 90% complete) from the following particulars Particulars ‘Amount (Rs.) Total Expenditure to date 22,50,000 Estimated further expenditure to complete the contract (including 2,50,000 Contingencies) Contract Price 32,50,000 ‘Work Certified 27,50,000 ‘Work Uncertified 1,75,000 Cash Received 21,25,000 (©) (SOLVE PROBLEM NO 13 OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM 8: Compute a conservative estimate of profit on a contract (which has been 90% complete) from the following particulars. Calculate the proportion of profit to be taken to Costing Profit & Loss Account under various methods and give your recommendation. (Rs.) 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 uncertified 34,000 Cash received 4,40,640 (©) (OLD SM, NEW SM) (ANS.: AMOUNT TO BE TRANSFERRED TO PSL A/C- 98,640) (SOLVE PROBLEM NO 14, 15 OF ASSIGNMENT PROBLEMS AS REWORK) CA Inter_41e_Costing (P)_Contract Costing. 7.6No.1 for CAICWA & MECICEC PROBLEM_9: under: (information in Rs. lakhs) (PRINTED SOLUTION AVAILABLE) Paramount Engineers are engaged in construction and erection of a bridge under a long-term. The cost incurred up to 31st March was as MASTER MINDS Fabrication Costs: Direct Materials Rs.280 lakhs Direct Labour Rs.100 lakhs Overheads Rs. 60 lakhs Total Rs.440 lakhs Erection Costs Rs.110 lakhs Total Costs to date Rs.550 lakhs The contract price is Rs.11 corers and the received on account till 31st March was Rs.6 Crores. A technical estimate of the contract indicates the following degree of completion of work: Fabrication: Direct Material - 70%, Direct Labour and Overheads 60%. Erection - 40%. You are required to estimate the profit that could be taken to Profit and Loss Account against this partly completed contract as at 31st March. (©) (OLD PM) (ANS.: PROFIT TO BE TAKEN TO P/l ACCOUNT: 87.58 LAKHS) Note: PROBLEM 10: (PRINTED SOLUTION AVAILABLE) MM Construction Ltd. commenced a contract ‘on April 1, 2011. The total contract was for Rs. 49,21,875. It was decided to estimate the total profit on the contract and to take to the credit of Costing Profit and Loss A/c that proportion of estimated April 1, 2011 to March 31, 2012 and estimated expen April 1, 2012 to September 30, 2012 profit on cash basis, which work completed bore to eer Actual expenditure for the period are given below. "1, 2011 to April 1, 2012 to rch 31, 2012 Sept. 30, 2012 (Actual) (Rs.) (Estimated) (Rs.) Materials issued S 7,76,250 12,99,375 Labour : Paid 5,417,500 618,750 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 retums to store (historical cost) 1,00,000 3,00,000 (on September 30, 2011) |_(on September 30, 2012) ‘Work certified 22,50,000) Full ‘Work uncertified 25,000 : Cash received 78,75,000 5 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, 2012 Require Prepare the Contract A/c for the year ended 31st March, 2012 and determine the estimated profit on the contract. (A) (NEW SM, OLD SM (ANS.: ESTIMATED PROFIT: RS. 10,2125) (SOLVE PROBLEM NO 16, 17 OF ASSIGNMENT PROBLEMS AS REWORK) Note: CA Inter_41e_Costing (P)_Contract Costing. 7798851 25025/26 www.mastermindsindia.com PROBLEM 11: (PRINTED SOLUTION AVAILABLE) A construction company under-taking a number of contracts, furnished the following data relating to its uncompleted contracts as on 31st March, 2012: Depreciation @ 20% per annum is to be charged on plant issued. While the Contract No. 723 was cartied over from last year, the remaining contracts were started in the 1st week of April, 2011 (Rs. in lacs) Contract Numbers 723 726 729 731 Total Contract Price 23.20 14.40 10.08 | 28.80 Estimated Costs on completion of contract 20.50 11.52 12.60 | 21.60 Expenses for the year ended 31.3.12 Direct Materials 5.22 1.80 1.98 0.80 Direct Wages 2.32 4.32 3.90 2.16 Overheads (Excluding Depreciation) 1.06 2.60 2.62 1.05 Profit Reserve as on 1.4.11 1.50 = = = Plant issued at Cost 5.00 3.50 275 3.00 Materials at Site on 1.4.11 0.75 = = = Materials at Site on 31.3.12 0.45 0.20 0.08 0.05 ‘Work Certified til 31.3.1 4.85 = = = ‘Work Certified during the year 2014-12 12.76 13.26 756 432 ‘Work Uncertified as on 31.3.12 0.84 0.24 0.14 0.18 Progress payments received during the year. 9.57 9.0 5.75 3.60 Required: i) Determine the profitloss in respect of each contract for the year ended 31st March, 2012. ii) State the profit/loss to be carried to Profit & Loss A/c for the year ended 31st March, 2012. (©) (OLD SM, NEW SMYANS.:() 6.20, 4.28, (1.27), (0.06); ()1.91, 1.80, (1.27), 0.08)) (SOLVE PROBLEM NO 18 OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM 12: (PRINTED SOLUTION AVAILABLE) A construction company undertook a contract at an estimated price of Rs.108 lacs, which includes a budgeted profit of Rs, 18 lacs. The relevant data for the year ended 31.03.2002 are as under: Particulars (Rs. 7000) Materials issued to site 5,000 Direct wages paid 3,800 Plant hired 700 Site office costs 270 Materials retumed from site 700 Direct expenses 500 Work certified 70,000 Progress payment received 7,200 A special plant was purchased specifically for this contract at Rs. 8,00,000 and after use on this contract til the end of 31.03.2002, it was valued at Rs.5,00,000. This cost of materials at site at the end of the year was estimated at Rs. 18,00,000. Direct wages accrued as on 31.03.2002 was Rs. 1,10,000. Required: Prepare the Contract Account for the year ended 31st March, 2002 and compute the profit to be taken to the Profit and Loss account. (8) (OLD PM, RTP N18 (N&O) (ANS.: AMOUNT TO BE TRANSFERRED TO PROFIT & LOSS AIC RS. 1200, % OF COMPLETION 82.59%) (SOLVE PROBLEM NO 19 OF ASSIGNMENT PROBLEMS AS REWORK) CA Inter_41e_Costing (P)_Contract Costing. 7.8No.1 for CAICWA & MECICEC MASTER MINDS MODEL 4: CONTRACT WITH ESCALATION CLAUSE PROBLEM 13: PG Ltd., undertook a contract for Rs. 5,00,000 on ‘st April 2013. On 31st March 2014 when the accounts were closed, the following details about the contract were gathered: Particulars Rs. Materials purchased 1,25,000 ‘Wages paid 45,000 General expenses 12,000 Plant purchased 1,25,000 Material in hand 31.3.2014 25,000 Wages accrued 31.3.2014 15,000 Work certified 2,50,000 Cash received 2,00,000 Work uncertified 15,000 Depreciation of plant 72,500 The contract contained an escalation clause, which read as follows: “In the event of increase(s) of prices of materials and rates of wages by more than 5%, the contract price would be increased accordingly by 25% of the rise of 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. The workings should formg@eypr your answer. (@) MTP 114) (ANS.: NOTIONAL PROFIT: RS. 86, 9@fRWOUNT TO BE TRANSFERRED TO P &L AC: RS. 46,947) (sou =M NO 20 OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM 14: (PRINTED so.urios WarLaste) A contractor has entered into a long term contract at an agreed price of Rs. 17,50,000 subject to an escalation clause for materials and wages {as spelt out in the contract and corresponding actual are as follows: Standard Actual Materials ty (tonnes) Rate (Rs) Gty (tonnes) Rate (Rs) A 5,000 50 5,050 “48,00 B 3,500 80 3,450 79.00 Cc 2,500 60 2,600 66.00 Labour Hours Hourly Rate (Rs.) Hours Hourly Rate (Rs.) x 2,000 70.00 2,100 72.00 Y 2,500 75.00 2,450 75.00 rs 3,000 65.00 3,100 66.00 Reckoning the full actual consumption of material and wages the company has claimed a final price of Rs. 17,73,600. Give your analysis of admissible escalation claim and indicate the final price payable. (©) (OLD SM, NEW SW) (ANS.: 8,500; 17,58,500) (SOLVE PROBLEM NO 21 OF ASSIGNMENT PROBLEMS AS REWORK) Note: CA Inter_41e_Costing (P)_Contract Costing.98851 25025/26 www.mastermindsindia.com ASSIGNMENT PROBLEMS MODEL 1: PREPARATION OF CONTRACT ACCOUNT PROBLEM 1: The following expenses were incurred on a contract Particulars ‘Amount (Rs.) Material purchased 6,00,000 Material drawn from stores 7,00,000 Wages 2,25,000 Plant issued 75,000 Chargeable expenses 75,000 [Apportioned indirect expenses 25,000 The contract was for Rs. 20,00,000 and it commenced on January 1, 2011. The value of the work completed and certified upto 30th November, 2011 was Rs. 13, 00,000 of which Rs. 10,40,000 was received in cash, the balance being held back as retention money by the contractee. The value of work completed subsequent to the architect's certificate but before 31st December, 2011 was Rs. 60,000. There were also lying on the site materials of the value of Rs. 40,000. It was estimated that the value of plant as at 31st December, 2011 was Rs. 30,000. (OLD SM, NEW SM (8) (ANS.: NOTIONAL PROFIT = 330,000; TRANSFERRED TO COSTING P & L A/C: 1,76,000) PROBLEM 2: M/s ABID Constructions undertook a contract at a price of Rs. 171.00 lacs. The relevant data for the year ended 31st March, 2014 are as under: Particulars (Rs. 000) Material issued at site 7700 Direct Wages paid 3300 Site office cost 550) Material retum to store 175) Work certified 12650 Work uncertified 225 Progress Payment Received 70120 Prepaid site office cost as on 31-03-2014 50) Direct wages outstanding as on 31-03-2074 700) Material at site as on 31-03-2014 710 Additional Information: a) A plant was purchased for the contract at Rs. 8,00,000 on 01-12-2013. b) Depreciation @ 15% per annum is to be charged ¢) Material which cost Rs.1,30,000 was destroyed by fire. Prepare: i) Contract Account for the year ended 31st March, 2014 and computes the profit to be taken to the Profit & Loss Account. ii) Account of Contractee Profit & Loss Account showing the relevant items. iv) Balance Sheet showing the relevant items. (©) (OLD PM, M14. 8M) (ANS.: (9 880 (1) 10,120 (m) 750) PROBLEM 3: A contractor commenced a contract on 01-07-2013. The costing records conceming the said contract reveal the following information as on 31-03-2014. Particulars ‘Amount (Rs.) Material sent to site 7,74,300 CA Inter_41e_Costing (P)_Contract Costing. 7.10No.1 for CAICWA & MECICEC MASTER MINDS Labour paid 10,79,000 Labour outstanding as on 31-3-2014 7,02,500 Salary to Engineer 20,500 per month Cost of plant sent to site (1-7-2013) 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 70,000 Material in hand at site as on 31-3-2014 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 31-3-2014 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 (A) (OLD PM, M12 - 8M) (ANS.: P & L AIC = 1,60,178, WIP (RESERVE): 1,10,122) PROBLEM 4: MKS Ltd. is engaged in construction sector. It took a contract to build a house for Rs. 45 lakhs. The contract commenced on 1° April, 2018. Following information, relating to contract, for the year ending as on 31% March, 2019 are as under: Particulars ‘Amount (Rs.) Materials purchased 852,000) Wages 10,48,000 Indirect Expenses 92,000. Administrative charges 1,18,000) Materials at site at the end of the year 38,000) Two-third of the contract was completed @ReGichitect issued certificate covering 50% of the contract & price and contractor has been paid 90°Q\Wie work certified on account. The books of accounts are closed on 31" March every year. . Prepare contract account showing following: i) Works cost of the contract ii) Value of works uncertified iii) Notional profit and iv) Amount to be carried to profit and loss account. (A) (N18 (0)- 8) PROBLEM 5: A contractor prepares his accounts for the year ending 31st December each year. He ‘commenced a contract on 1st April, 2011 The following information relates to the contract as on 31st December, 2011 Particulars ‘Amount (Rs.) Material issued 2,51,000 Labour charges 5,65,600 ‘Salary to Foreman 81,300 ‘A machine costing Rs. 2,60,000 has been on the site for 146 days, its working life is estimated at 7 years and its final scrap value at Rs. 15,000. ‘A supervisor, who is paid Rs. 8,000 p.m. has devoted one-half of his time to this contract All other expenses and administration charges amount to Rs. 1,36,500. Material in hand at site costs Rs. 35,400 on 31st December, 2011. CA Inter_41e_Costing (P)_Contract Costing. WAL8851 25025/26 www.mastermindsin com The contract price is Rs. 20,00,000. On 31st December, 2011 two-third of the contract was completed. The architect issued certificates covering 50% of the contract price, and the contractor had been paid Rs. 7,50,000 on account. Prepare Contract A/c and show how much profit or loss should be included in financial accounts to 31st December, 2011 (A) (NEW SM, OLD SM) (ANS.: NOTIONAL PROFIT = RS. 2.13,260; AMOUNT TO BE TRANSFERRED TO P&L A/C 1,06,625) PROBLEM 6: Mr. Bhagwandas undertook a contact for Rs. 15,00,000 on an arrangement that 80% of the value of the work done as certified by the architect of the contract should be paid immediately and that the remaining 20% be retained until the contract was completed, In 2005-'06-'07 amounts expended were: Particulars 2005 2006 2007 Materials 1,80,000 2,20,000 1,26,000 Wages 1,70,000 2,30,000 1,70,000 Carriage 6,000 23,000 _ Cartage 1,000 2,000 6,000 Sundry Exp. 3,000 4,000 3,000 Other information: 2005: Work certified for Rs.3,75,000 & 80% cash received. 2006: 3/4th of contract was certified and 80% of cash received. Uncertified work -20,000. 2007: on 30th June, the work completed, ‘Shown how the contract account and also contractee's account would appear each of these years in the books of the contractor assuming that the balance due to him was paid on completion of the contract. (C) (ANS.: 2006: P & L A/C - 4000, 2006: P & L A/C:- 161067, 2005: P & L A/C. 1,90,933) MODEL 2: PROFIT / LOSS ON INCOMPLETE CONTRACTS PROBLEM 7: A building contract on October 1, 2010. The contract price is Rs. 4,40,000. The following data pertaining to the contract for the year 2011-2012 has been compiled from his books and is as under: Date Particulars (Rs.) April 1, 2071 ‘Work-in-progress not certified 55,000 Materials at site 2,000 2011-12 Expenses incurred Materials issued 4,12,000 ‘Wages paid 7,08,000 Hire of plant 20,000 Other expenses: 34,000 March 31, 2012 Materials at site 4,000 ‘Work-in-progress : Not certified 8,000 Work-in-progress : Certified 4,05,000 The cash received represents 80% of work certified. It has been estimated that further costs to complete the contract will be Rs. 23,000 including the materials at site as on March 31, 2012 Required: Determine the profit on the contract for the year 2011-12 on prudent basis, which has to be credited to Costing P/L A/c. (© (OLD SW) (ANS.: AMOUNT TO BE TRANSFERRED TO PAL AIC- 66273) CA Inter_41e_Costing (P)_Contract Costing. 7.42No.1 for CAICWA & MECICEC MASTER MINDS PROBLEM 8: Modern Constructions Ltd obtained a contract No. B-37 for Rs.40 Lakhs. The following balances and information relates to the contract for the year just ended. ; At the beginning of | At the end of the Pariculare the year Rs. year Rs. Work-in-Progress: Work Certificate 940,000 30,00,000 Work Uneertified 11,200 32,000 Materials at site 8,000 20,000 Accrued Wages 5,000 3,000 Particulars Rs. Particulars Rs. Materials issued from Stores _| Rs.4,00,000 | Indirect Expenses Rs. 10,000 Materials directly purchased | Rs.1,50,000 | Share of General Overheads for| __Rs.18,000 B37 Wages paid Rs,6,00,000 | Materials returned to Supplier Rs,16,000 Architect's Fees Rs.51,000 | Fines and Penalties paid Rs. 12,000 Plant Hire Charges Rs.50,000 | Materials returned to Stores Rs.25,000 The Contractee pays 80% of Work Certified in cash. You are required to prepare - i) Contract Account showing clearly the amount of profits transferred to Profit and Loss Account, ii) Contractee’s Account, and SS Balance Sheet. (A) (OLD PM (ANS.: PROFIT- RS. 4,56,427) ReePLn 1st April 2015. The Trial balance as PROBLEM 9: ABC Construction Ltd. has started a on 31st March 2016 showed the following balances Particulars Dr. (Rs.) Cr. (Rs.) Paid up share capital 1,75,00,000' Land and buildings 46 ,00,000 Machinery at cost (60% at site) 36,00,000 (Cash and bank 30,000 Materials at cost 25,26,000 Creditors for materials, 70,30,600 Direct wages 73,28 000 Site expenses 9,60,000 Vehicles 32,20,000 Fumiture 3,22,000 Office equipments 640,000 Postage and Stationery 29,600 Office expenses 626,000 Rates and taxes 25,600 Fuel and power 846,000 (Outstanding wages 224,000 ‘Advance rates and taxes 7,400 1,87,54,600 7,87 54,600 The contract price is Rs. 2,50,00,000 and work certified is Rs. 1,00,00,000. The cost of work uncertified is Rs. 12,00,000. Machinery costing Rs. 2,00,000 was returned to stores at the end of the year. Stock of material at site on 31st March 2016 was of the value of Rs. 50,000. Depreciation on Machinery, Vehicles and furniture are 10%, 20% and 15% respectively. You are required to calculate the profit from the contract. () (RTP N16) (ANS.: NOTIONAL PROFIT: RS. 37,06,900) CA Inter_41e_Costing (P)_Contract Costing. 7.1398851 25025/26 www.mastermindsindia.com PROBLEM 10: G. Constructions has undertaken three separate building contracts. Information relating to these contracts for the year 2016-17 are as under: Contract -1(Amount] Contract -1 Contract - I Parculars, in ves 600) (Amount in Rs.’000) |(Amount in Rs.’000) Value of contract 17,500 44,500 24,500 Balances as on 07.04.2016: Work completed and certified = 4,100 8,160 Materials at site : 220 310 Plant & Machinery (WDV) 770 3,760 Wages outstanding 48 104 Profit transferred to Costing P/L es 7 - - 350) Transaction during the year: Materials issued to the sites 870 2,160 4,020 Wages paid to workers 450 1.160 2,180 Salary to site staffs 90 85 135 Travelling and other expenses 18 24 32 Plants issued to sites Ho 240 680 ‘Apportionment of Head office eo 110) 90 126: Balances as on 37.03.2017: Materials at site 215 162 2 Plant & Machinery (WDV) 728 808 3562 Wages outstanding 52 98 146; Values of works certified 2,000] 8600 24,000 Cost of work not certified 800 452 560 As per the contract agreement 15% of the certified value of the contract is kept by the contractees as retention money. The Contact-IIl is scheduled to be completed in the coming months, however, this contract required a further estimated cost of Rs. 7,20,000 to get it completed, Require a) Prepare Contract Statement for each of the three contracts and calculate the notional’ estimated profit/ loss b) Calculate the profit/ loss to be transferred to Costing Profit & Loss Account for internal managerial purpose. (C) (RTP N17) (ANS.: A) ESTIMATED PROFIT: |, 12,43,000, I 11,23,000, I. 94,09,000 8) PROFIT TO BE TRANSFERRED TO COSTING P&L A/C:1, NILL, I 6,36,370, Il. 74,84,500) PROBLEM 11: Dream house (P) Ltd. is engaged in building two residential housing projects in the City. Particulars related to two housing projects are as below: Particulars HP-1 (Rs.) | HP-2(Rs.) ‘Work in Progress on ist April 2013 780,000 | _2,80,000 Materials Purchased 6,20,000 | 8,10,000 Land purchased near to the site to open an office = | 12,00,000 Brokerage and registration fee paid on the above purchase = 60,000 ‘Wages paid 85,000 62,000 ‘Wages outstanding as on 31st March, 2074 12,000 8,400 Donation paid to local clubs 5,000 2,500 Plant hire charges paid for three years effecting from 1st April 2013 72,000 57,000 Value of materials at site as on 31st March, 2014 47,000 52,000 CA Inter_41e_Costing (P)_Contract Costing. 7.14No.1 for CAICWA & MECICEC MASTER MINDS Contract price of the projects '48,00,000 | _36,00,000 Value of work certified 20,50,000 | 16,10,000 ‘Work not certified 4,90,000 | __ 1,40,000 ‘A conerete mixture machine was bought on 1st April 2013 for Rs. 8,20,000 and used for 180 days in HP-1 and for 100 days in HP-2. Depreciation is provided @ 15% p.a. (this machine can be used for any other projects) As per the contract agreement contractee shall retain 20% of work certified as retention money. Prepare contract account for the two housing projects showing the profit or loss on each project for the year ended 31st March, 2014. (©) (OLD PM, RTP- M15) (ANS: AMOUNT TO BE TRANSFERRED TO P&L. AIC 186,758; 1,56,374) PROBLEM 12: Premier Construction Company undertook a contract for Rs.5,00,000 on 1st August, 2016. On 31st March, 2017 when the accounts were closed, the following information was available: Cost of work uncertified Rs. 1,20,000 ‘Cash received Rs. 2,50,000 (80 of work certified) Profit transferred to costing Profit and Loss account at nete0 ono} the end of the year on Incomplete contract y Calculate: i) The value of work in progress certified ii) Degree of completion of contract iii) Notional Profit and iv) Cost of contract as on 31-03-2017 (a) (17-5) (ANS. 2,500, I) 62.5%, Il) RS. 1,50,000, V) RS. 2,82,500) MODEL 3: CALCULATION PROBLEM 13: Compute a conservative es} of profit on a contract (which has been 90% complete) from the following particulars. f@ the proportion of profit to be taken to Costing Profit & Loss Account under various met ‘d give your recommendation. Par@alars. (Rs.) 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 uncertified 34,000 Cash received 4,40,640 (©) (OLD SM, OLD PM) (ANS.: A) PROFIT- RS.4,90,385; B) PROFIT - RS. 98,640) PROBLEM 14: Hut-to-Palace Ltd. undertook a contract in last year. In the agreement between the Hut-to-Palace Ltd. and the contractee, there is a clause stating that Hut-to-Palace Ltd. will receive total cost plus 40% as contract consideration. The following are the details of the contract as on 31st March, 2014: Particulars Amount (Rs.) Total expenditure to date 17,684,525 Estimated further expenditure to complete the contract 838,645 Value of work certified 21,07,500! Cost of work not certified 3,114,075 Progress payment received from the contractee 14,75,250 From the above information calculate the CA Inter_41e_Costing (P)_Contract Costing. 7.158851 25025/26 www.mastermindsin com a) Conservative estimate of profit for the management of Hut-to-Palace Ltd. b) What would be the estimated profit from the contract if management of Hut-to- Palace Ltd has ‘come to know that the contractee has liquidity crunch and it is not able to pay further payments. (©) (RTP M4) (ANS.: A) 305,223, B) (289,275) PROBLEM 15: From the following particulars compute a conservative estimate of profit by 4 methods ‘on a contract which has 80 percent complete: Particulars ‘Amount (Rs.) Total expenditure to date 8,50,000 Estimate further expenditure to complete the contract 4,70,000 Contract Price 15,30,000 Work Certified 710,00,000 Work not certified 85,000 Cash received 8, 16,000 (©) (OLD PM, N12 BN) (ANS.: AMOUNT TO BE TRANSFERRED TO PAL. AIC. 1,25,233) PROBLEM 16: PQR Construction Ltd. commenced a contract on April 1, 2009. The total contract was for Rs.27,12,500. It was decided to estimate the total profit and to take to the credit of P/L A/c the proportion of estimated profit on cash basis which work completed bear to the total contract. Actual expenditure in 2009-10 and estimated expenditure in 2010-11 are given below: pens 2009 - 10 2010-11 ‘Actual (Rs.) Estimated (Rs.) Material issued 4,56,000 8,14,000 Labour: Paid 3,05,000 3,80,000 Outstanding at end 24,000 37,500 Plant purchased 2,25,000 = Expenses: Paid 7,00,000 1,75,000 Outstanding at the end - 25,000 Prepaid at the end 22,500 - Plant returned to stores (a historical stores) 75,000 |_1,50,000 (on Dec 31 2010) Material at site 30,000 75,000 ‘Work-in-Progress certified 42,75,000 Full ‘Work-in-progress uncertified 40,000 Cash received 10,00,000 Full The plant is subject to annual depreciation @ 20% of WDV cost. The contract is likely to be completed on December 31, 2010. Required: i) Prepare the Contract A/c for the year 2009-10. ii) Estimate the profit on the contract for the year 2009-10 on prudent basis which has to be credited to PIL Alc (A) (OLD PM, N10 - 8M) (ANS. ()) NOTIONAL PROFIT-4,37,500; I) 1,59,263) PROBLEM 17: MNP Construction Ltd. commenced a contract on April 1, 2010. The total contract was for Rs. 17,50,000. It was decided to estimate the total profit and to take to the credit of Costing PIL Alc the proportion of estimated profit on cash basis which work completed bore to the total contract. Actual expenditure in 2010-11 and estimated expenditure in 2011-2012 are given below: 2010-11 2012-13 oriculars (Actual) (Rs.)_| (Estimated) (Rs.) Materials issued 3,00,000 5,50,000 Labour : Paid 2,00,000 2,50,000 CA Inter_41e_Costing (P)_Contract Costing. 7.16No.1 for CAICWA & MECICEC MASTER MINDS (Outstanding at end 20,000 30,000 Plant purchased 7,50,000) = Expenses : Paid 75,000 750,000 Prepaid at end 15,000 = Plant retums to store (historical cost) 50,000 7,00,000 (on Dec. 31, 2011) Material at site 20,000 50,000 Work certified 8,00,000 Full ‘Work uncertified 25,000 = Cash received 6,00,000 Full The plant is subject to annual depreciation @ 25% of WDV Cost. The contract is likely to be completed on Dec. 31, 2011. Prepare the Contract A/c. Determine the profit on the contract for the year 2010-2011 on prudent basis, which has to be credited to Costing P/L Alc. (A) (OLD SM) (ANS.: AMOUNT TO BE TRANSFERRED TO P & L A/C: RS. 66,322) PROBLEM 18: Giant Construction Ltd. has been constructing a flyover for 15 months and is under Progress. The following information relating to the work on the contract has been prepared for the period ended 31st March, 2014 Particulars Amount (Rs.) Contract price 65,00,000 Value of work certified at the end of the year 57,20,000) Cost of work not yet certified at the end of the year 4,20,000 ‘Opening balances’ Cost of work completed 8,00,000 Ca Materials on site Ss 80,000 &S Costs incurred during the year: Material delivered to site 15,90,000 Wages 14,95,000 Hire of plant 2,86,000 Other expenses © 2,30,000 Closing balance: Material on site 40,000 ‘As soon as materials are delivered to the site, they are charged to the contract account. A record is kept on actual use basis, periodically a stock verification is made and any discrepancy between book stock and physical stock is transferred to a general contract material discrepancy account. The stock verification at the yearend revealed a stock shortage of Rs. 15,000. In addition to the direct charges listed above, general overheads are charged to contracts at 5% of the value of work certified. General overheads of Rs. 35,000 had been absorbed into the cost of work completed at the beginning of the year. It has been estimated that further costs to complete the contract will be Rs. 5,72,000. This estimate includes the cost of materials on site at the end of the year (31.3.2014) and also a provision for rectification. You are required to compute: i) Profitability of the above contract and recommend how much profit should be taken for the year just ended. (Provide a detailed schedule of costs). ii) State how your recommendation in (i) would be affected if the contract price was Rs. 80,00,000 (rather than Rs, 65,00,000) and if no estimate has been made of costs to completion. (©) (MTP N16) (ANS.: | AMOUNT TO BE TRANSFERRED TO P & L A/C: RS. 8,59,584; l) AMOUNT TO BE TRANSFERRED TO P&L. ‘AGRS. 6,04,267) PROBLEM 19: Apex construction Ltd, has undertaken a contract to build a commercial building at an estimated price of Rs.135 lakhs, expecting a profit of Rs. 28 lakhs from this contract. CA Inter_41e_Costing (P)_Contract Costing. 7.1798851 25025/26 www.mastermindsindia.com The data for the year ended 31.03.2016 are as under: Particulars ne Rar aney Materials issued to site 6,500 Direct wages paid 3,820 Machine hired 780 Site administration cost 570 Materials returned from site 90) Other direct expenses 850 Work certified 42,000) Payment received up to 31.03.2016 9,600 A crane was purchased specifically for this contract at Rs. 18,00,000 and at the end of 31.03.2016, it was valued at Rs, 13,00,000. The cost of materials at site at the end of the year was estimated at Rs. 14,00,000. Wages of Rs. 98,000 is still to be paid You are required to prepare: Prepare the Contract Account and Cost of the contact for the year ended 31st March, 2016. (8) (MTP N16) (ANS.: COST OF CONTRACT: 1,16,28,000) MODEL 4: CONTRACT WITH ESCALATION CLAUSE PROBLEM 20: Deluxe Limited undertook a contract for Rs. 5,00,000 on ‘st July 1986. On 30th June 7987, when the accounts were closed, the following details about the contract were gathered: | Particulars Amount (Rs.) Particulars Amount (Rs.) Materials purchased 1,00,000 | Wages accrued 30.6.1987 5,000 Waged paid 45,000 | Work certified 2,00,000 General Expenses 10,000 | Cash received 1,50,000 Plant purchased 50,000 | Work Uncertified 15,000 Materials on hand 30.6.87 25,000 | Depreciation of Plant 5,000 The above contract contained an escalation clause which reads as following: "In the event of price of materials and rates of wages increase by more than 5% the contract price will 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. Workings should form part of the answer. (A) (ANS.: NOTIONAL PROFIT 80,000) PROBLEM 21: SB Constructions Limited has entered into a big contract at an agreed price of Rs.1,50,00,000 subject to an escalation clause for material and labour as spent out on the contract and corresponding actuals are as follows: Standard Actual Material ‘Quantity Rate Per Quantity Rate Per (Tonnes) Tonne (Rs) (Tonnes) Tonne (Rs) a 3,000 7,000 3,400 1,100 B 2,400 800 2,300 700 c 500 4,000 600 3,900 D 100 30,000 90 31,500 Labour Hours Hourly Rate Rs. Hours Hourly Rate Rs. u 60,000 15 56,000 18 B 40,000 30 38,000 35 CA Inter_41e_Costing (P)_Contract Costing. 7.18No.1 for CAICWA & MECICEC MASTER MINDS You are required to: a) Give your analysis of admissible escalation claim and determine the final contract price payable. b) Prepare the contract account, if the all expenses other than material and labour related to the contract are Rs.13,45,000. (©) (OLD PM) (ANS.: A) 540,000, 1,56,40,000, B) ESTIMATED PROFIT - 13,32,000) EROS site att PROBLEM NUMBERS TO WHICH SOLUTIONS ARE PROVIDED: 4, 5, 9, 10, 11, 12, 14 OBLEM NO. Dr. Contract No. 999 account for the year ended 31% march, 2014 cr. Particulars ‘Amount (RS) Particulars ‘Amount (RS.) To Work In Progress bid: ‘By material return to store 30,000 = Work certified 12,00,000 = _ Work uncertified 20,000 To Stock (Materia) b/d 45,000 |By Material retum to Suppliers 20,000 ‘To Material Purchased 7[60,000 | By Stock (material) cid 30,000 To Material Issued 3,00,000 | By Work in Progress oi - Work certified 35,00,000 = Work uncertified 40,000 To Wages & Salaries 7,00,000 Less: Opening O/s (410,000) Add: Closing O's 20,000 7.10,000 To drawing & maps 60,000 S TTo sundry expenses 15,000 To electricity charges 25,000 To plant & hire expenses 60,00( TTo sub contract cost 20, To Notional Profit oid (67) 3, FaSO00 36,20,000 To Costing PA LAS WNA EL 500 |By notional profi bd 8,35,000 To WIP reserve (bal. fig) 577.500 8,35,000, 536,000 ‘+ Assumed that expenses incurred for drawing and maps are used exclusively for this contract only. Particulars Amount (Rs.) Particulars Amount (Rs.) To balance old (35,00,000 x75%) | _26,25,000| By balance bid (75% of Rs, 12,00,000)| _9,00,000 By bank A/c 17,25,000 26,25,000 26,25,000 Working Note 4. Profit be transferred to Costing Profit & Loss Account: a) Percentage of completion = Werkcetttied, 499 = 3600000, 499 = 79% Valueof contract ""°~ 59,00,000 b) Profit to be transferred to Costing Profit & Loss account xNotionalprofitx S2smecev ed Workcerified x95 000x 5 = Rs, 4,17,500 700 PROBLEM NO. 5 or. Contract Accounts of Mis DKG LLP forthe year ended 21st March, 2016 cr. Particulars Contract [contact Particulars Contract | contract [To Stores 7,400 ‘300 |By Stores return 760) 0 CA Inter_41e_Costing (P)_Contract Costing. 7.19Ph: 98851 25025/26 www.mastermindsin To Plant & Machinen 2,000) 300 [By Transfer to 102 80 : To Transfer from 101 - ‘80| By Materials at site 150) 30 To Plant hire charges 400) 60] By Plant at site 4,700) 285) To Wages: 600) ‘540 | By Cost of work not certified 320) 40) To Overheads 150] 36] By Cost of work certified (bal, 2,190 | 909) fig) old To Other direct expenses 50 8 4,600) 1,324 4,600| 1,324 To Cost of work certified b/d 2.190 ‘909 [By value of work certified 3,000| 750! To Notional profit 810 -| By Notional loss - 159) 3,000] 909 3,000 | 909) PROBLEM NO. 9 Estimation of Profit to be taken to Profit and Loss Account against partly completed contract as at 31.03.2014. Cashreceived Profit to be taken to P/L Account Cashreceived Workcerified xNotionalprofitx = 2 Rs92.48lakhs x R8600lekhs_ 3 Rs642.48laKhs Rs.57.58lakhs. (Refer to working notes 1, 2, 3 & 4) Working Note 1. Statement showing estimated profit to date and future profit on the completion of contract Particulars Cost to date Further costs () ‘Amount (%) ‘Amount | Total cost completionto| —(Rs.)__|completionto| —(Rs.) (a) +(b) date (a) be done (b) Fabrication costs: Direct material 70 280.00 30| 120.00 400.00 Direct labour 60 400.00 40 66.67 166.67 ‘Overheads 60 60.00 40 40.00) 100.00 Total fabrication cost: (A) 440.00 226.67) 666.67 Erection cost: (B) 40 110.00 60| 165.00 275.00 Total estimated cost (A*B) 550.00 391.67) 941.67 Profit 92.48 65.85) 158.33 642.48 457.52| 1,100.00 2. Profit to date (Notional Profit) and future profit are calculated as below: Profi to date (Notional prot) = Eimatedbrofitonthewholecontractxcosttodate Totakost Rs 158.33xR6550 Rs041 67 Future profit= Rs.158.33 - Rs.92.48 = Rs.65.85, 3. Work certified = cost of the contract to date + profit to date = Rs.550 + Rs.92.48 = Rs.642.48 lakhs = Workcertified, 49 _Rs.642.48lakhs s, 92.48 (lakhs) 4. Degree of completion of contract to date = = x100=58.40% ‘ontractprice Rs.1100iakns PROBLEM NO. 10 Dr. Contract Alc (1-4-20X1 to 31-3-20X2) cr. [ Particulars (Rs) Particulars (Rs) To Materials issued 7.76,250 | By Plant retumed to Store on 30-9-20K1 4,00,000 CA Inter_41¢_Co: 9 (P)_Contract Costing 7.20No.1 for CAICWA & MECICEC MASTER MINDS To Wages 517,500 Less: Depreciation(1/2) (12,500) 87,500 Less: Prepaid (87,500) ‘Add: Outstanding 12,500 492,500 | By Plant at site on 31.3X2__3,00,000 To Plant purchased 4,00,000 | Less : Depreciation (75,000) 225,000 To Expenses 2,25 000 By Materials at site od 82,500 Less: Prepaid 5,000) By Work-in-progress ci ‘Add: Outstanding 25,000 2,35,000 | Work certified 22,50,000 [Work uncertified 25,000 To Notional profit 7,66,250 26,70,000 26,70,000 ‘Computation of Estimated Profit Dr. Contract Alc (1-4-20X1 to 30-9-20X2) cr. Particulars (Rs) Particulars (Rs) To Materials Bsued 20,75,625 |By Materials at site 42,500 (7,76,250 + 12,99,375) To Wages (5,17,500 - 37,500 + 12,500] 11,42,000|By Plant retumed to store on 87,500) +6,18,750 + 37,500 - 12,500 + 5,750) 30.9.20X1 (1,00,000 - 12,500) To Plant purchased 400,000/By Plant retuned to store on 1,96,875 30.9.X2 (4,00,000 - 1,00,000 - 4,03,125) To Expenses (2,25,000+25,000 - 15,000] _6,10,000|By Contract Alc 48,21 875 +3,75,000 - 25,000 +15,000 + 10,000) To Estimated profit 10,21,125 e 52,48,750 52,48,750 Workings: \S Ce mem season — Plant purchased on 1-4-20X1 Less: Plant retumed to store on 30-9-20X1 (Depreciation on it Rs1,00,000 x 25/100. Rs12,500) 3,00,000 Less: Depreciation on Balance plant (3,008 25/100) 75,000 WDV of Plant on 1-4-20X2 225,000 Less: Depreciation (2,25,000 x 25/100 x 6/12) 28,125 ‘WDV of plant retumed to store on 30-9-20X2 7,96,875 i) Particulars Contract numbers 723_| 726 | 729 | 731 ‘. | Contract compietion percentage: - Work certified: (a) 174i] 13.26] 7.56] 4.32 = Contract price: (b) 23.20| 14.40] 10.08] 28.80 Percentage of completion: {(a) - (b)] 75.04| _92.08| 75.00| 15.00 B. [Estimated profit on completion: = Contract price: (¢) 23.20] 14.40] 10.08] 28.80 - _ Estimated costs on completion: (d) 20.50} 11.52] 1260| 21.60 Estimated profit (oss) on completion; [() - ()] 270| _288| (2.52)|__ 7.20 ©. [Profit of the year: = Opening stock of materials 0.75 : : 2 = Material issued 522] 180/ 1.98] 0.80 - Direct wages 232] 432] 390/216 - Overheads 108] 260] 262] 1.05 = _ Depreciation 100] __0.70| 0.55] 0.60. Total: (P) 70.35[ 9.42| _9.05| 4.61 Profit in reserve 1.50 : E 7 Material at site on 31703712 0.45[ 020[ 0.08] 0.05 CA Inter_41e_Costing (P)_Contract Costing. 7.24Ph: 98851 25025/26 www.mastermindsin Total: (Q) 195, 0.20, 0.08, 0.05) Cost of contract: (R) = [P) - e4o[922[ 8.97[ 4.56) Work certified 12.76, 13.26| 7.56] 4.32. ‘Work not certified oe4[ 0.24, 0.14] 0.18) Total: (S) 13.60[13.50[7.70[ 4.60) Profit (loss) for the year [(R) - (S) 5.20; 4.28; (1.27)| (0.06) ii) Profit to be taken to costing profit & loss Account of the year in respect of respective contract 2 Castreceived_ 2 987 Contract 723 = 2 xNotionalprofitx Cashreceves= 25 29. 257 rs 1 9056lakhs Workcerified 3 17.40 Work certified cashreceived contractprice ” Work certified Contract 726 = Estimatectotalprofitoncompletion. 13.26 9.0 = Rs 2.68228, 20 R180 14.40 "73.25 PROBLEM NO. 12 Dr. Contract Account for the year ended 31st March, 2014 cr. Particulars ‘Amount Particulars ‘Amount To Material ssue to site ‘5,000 |By Material at site 1,800. To Direct wages 3,800 3,910 | By Material retumed 100) Add: outstanding wages 110 To Plant Hire 700 |By Cost of Contract 8780 To Site office cost 270 To Direct Expenses 500) To Depreciation (Special plan 300 10,680 10,680 To Cost of Contract 8,780 | By work certified 10,000. To Profit & Loss Alc 1,200 To WIP (Reserve) cid 20 10,000 70,000 Working Note: Valucof workoertified 4 qq _100akhs. Malueofworkconified 100=92,59% \Valucof thecontract 108lakhs 4. Percentage of completion of contract 2. Since the percentage of completion of the contract is more than 90% therefore, the profit to be taken to profit & loss A/c can be computed by using the following formula. CashReceived Work certified Profit to be taken to profit & loss Account = Budget estimatedprofitx: Work certified “ Contractprice = 1800x2200, 10000 ps s2001aKns }OBLEM NO. Statement showing final claim Standard Standard ‘Actual Variation in Escalation Qty/Hrs. Rate (Rs) Rate (Rs) Rate (Rs) Claim (Rs) fa) {b) {c) (d) = (c)-(b) (e) =(a) x (a) Materials A 5,000 50.00 48.00 2.00 (40,000) B 3,500. 80.00 79.00 1.00 (@.500) c 2,500) 60.00 66.00) (46.00 45,000 Materials escalation clai 4,500 Wages X 2,000 70.00 72.00 @2.00 4,000 Y 2,500 75.00 75.00 = = CA Inter_41e_Costing (P)_Contract Costing. 7.22No.1 for CAICWA & MECICEC MASTER MINDS Zz 3,000 65.00 66.00 (4.00 3,000 Wages escalation claim: (B) 7,000 Final claim: (A +B) 8,500 ‘Statement showing final price payable Agreed price Rs. 17,50,000 ‘Agreed escalation: ‘Material cost Rs. 7,500 Labour cost Rs. 7,000, Rs. 8,500, Final price payable Rs. 17,58,500 The claim of Rs 17,73,600 is based on the total increase in cost. This can be verified as shown below: Statement showing total increase in cost Standard Cost Actual Cost Increase/ Particulars: Qty/ hrs | Rate (Rs.) | Amount (Rs.) Rate (Rs.) | Amount (Rs.)| (Decrease) (a) (b) (c) = (a) x (b)|_ (a) (e) (f) =(d) x (e) | 9 = (f)-(c) Materials A 5000 | 000 | ~2,50,000 | 5.050 | 800 | 2.42400 | (7.600), B 3,500 80.00 2,80,000 3,450 79.00 2,72,550 (7,450) c 2,500 | 60.00 | 1,50,000 | 2.600 | 66.00 | 1.71,600 | 21,600 80.000 3.86.50 | 6.550 i Wages x 2000 | 7000 | 140000 | 2100 | 7200 | 151,200, Y 2500_| 75.00 | 187,500 | 24s} 75.00 | 1.83.750, Z 3.000 | 65.00 | 1.95.00 | @] 66.00 | 2.04.600 §,22,500 5,309,550 17,050 23,600 Contract price Add: Increase in cost The final price claimed by the company This claim is not admissible because escalation clause covers only that part of increase in cost, which has been caused by inflation Note: It is fundamental principle that the contract would compensate the contractor for the increase in costs which are caused by factors beyond the control of contract and not for increase in costs which are caused due to inefficiency or wrang estimation. Copyrights Reserved To MASTER MINDS, Guntur THE END CA Inter_41e_Costing (P)_Contract Costing. 7.23