Contract
Costing
Multiple Batch
Costing Costing
COSTING
“The technique and
Operating Single
process of
Costing Costing
ascertaining costs.”
Process
Job Costing
Costing
Contract
Costing is defined by the ICMA
Terminology as
Each contract is treated as a cost unit.
A separate account for each contract.
Work is done at site, away from contractor’s own
premises.
The contract has a long duration usually extending more
than one accounting year.
All items of cost which are directly related to the contract
are chargeable to respective contract accounts.
Payment is made by contractee on the basis of work
certified by surveyor or architect.
Penalties or extra money may be imposed.
Though contract costing is a part of Cost Accounting, but
it is purely based on the principles of Financial
Accounting. Such as Dual Aspect, Prudence and
Conservatism. And AS9 (Revenue Recognition)
Fixed Price Contract
• Fixed Price is agreed
• Deductions are made for Defectives and Penalties
• Extra money for additional work
Cost Plus Contract
• compensates for costs actually incurred by contractor.
• a percentage of cost or any lump sum amount.
Contract with Escalation Cost
• Mixture of both of the above.
• A fixed price will increase with increase in cost of material,
labour.
Land Cost
Site labour Cost
Cost of material
Depreciation on plant and equipments used at site
Sub Contract Cost
Cost of moving plant
Cost of hiring Plant & Machinery
Cost of design
Maintenance Cost
Guarantee & Warrantee Cost
Penalties, etc.
× General Administrative Cost
× Selling Cost
× Research & Development Cost
× Depreciation on ideal plant & equipment
× Cost of unconsumed material
× Advance payment to sub contractor
× Cost of material which is delivered to site for
future
× Profit/Loss on sale of any material/plant
Can you Say how
Can you Say how
much work
much work
has been New Building of
has been Central Bank,
completed ???
completed ??? Europe
“Work Certified is that “Work Uncertified is
proportion of the work that part of the work
completed which has completed which has not
been certified or and been certified/approved
valued by the architect by the contractee’s
or surveyor.” architect or surveyor.”
Payment is made on the There is no role of Work
basis of Work Certified. Uncertified in payment.
Accounting Treatment is same for both:
Work-in-Progress A/c Dr.
To Contract A/c
01/04/2015 – 31/03/2016
(ONE FINANCIAL YEAR)
Work Done but not
Work Done and certified certified
WORK WORK
CERTIFIED UNCERTIFIED
01/04/2015 31/10/2015 31/03/2015
1.Starting of year Assessment done 1.Ending of year
by Architect or 2. Date of
2. Starting payment
/continuation Surveyor and
certified the 3. Closing of
of contract account of
work done, i.e.
incomplete
work certified contract
A Contractor does not receive full payment of the
Work Certified by the surveyor.
Contractee retains some amount to be paid, after
sometime, when it is ensured that there is no fault in
the work carried out by contractor.
This retained money is called as Retention Money.
Retention Money= Value of work Certified
(-) Payment actually made
Particulars Amount Particulars Amount
To Material Purchased XXX By Work-in-progress:
Work Certified XXX
Work Uncertified XXX
To Material received from By Material Return to
stores XXX Stores XXX
To Material from other By Material sent to other
contract XXX contract XXX
To Wages XXX By COST of Material Sold XXX
To Indirect Expenses XXX By Material on Hand XXX
To Plant & Machinery XXX By Plant on Hand XXX
To Accrued Wages XXX
To Accrued Expenses XXX
To Notional Profit c/d XXX
XXX XXX
If Profit,
Transferred to Credit
side of P&L Account
If Loss,
Transferred to Debit
side of P&L Account
If Profit,
1 Part Transferred to
Credit side of P&L
Account as per the
work Completed
Another to WIP A/c
If Loss,
Transferred to Debit
side of P&L Account
As per the % of Work Completion, 3 stages of work completed
is made which helps in transferring the amount to P&L Account.
% of Work
Stage Name Formulae
Completion
Initial Stage 0% to 24% No Profit will be transferred to P&L
Work done but
25% to 49%
not Substantial
Substantial
50% to 100%
Work Done
LIABILITIES Amount ASSETS Amount
Work in Progress:
Work Certified XXX
Costing P&L Account (+)Work
XXX Uncertified XXX
Contractee A/c XXX (-) Cash Received (XXX)
Unpaid Expenses XXX (-) WIP Reserve (XXX) XXX
Unpaid Wages Plant in Hand
XXX (Less Depreciation) XXX
Material on Hand XXX
Cash XXX
