After studying this chapter you should be able to:
Know the meaning of contract costing.
Understand the features of contract costing.
Understand the contract-costing procedure.
Explain the types of contracts.
Ascertain the profits on incomplete contracts.
Understand the terms: certification of work, retention money, cost-plus contract, paid costing, cost esclation and final claim.
Compute cost and profit of contracts.
Explain the meaning of important key terms.
We have discussed in the previous chapter the specific-order costing, that is, job costing and batch costing. In this chapter, we are going to discuss “contract costing”, which is also a special form of job costing.
The terminology of CIMA defines contract cost as, “the aggregated costs relative to a single contract designated a cost unit” Further, it defines contract costing as, “that form of specific-order costing which applies where work is undertaken to customer’s special requirements and each order is of long-term duration (compared with those to which job costing applies). The work is usually constructional and in general the method is similar to job costing”. From this definition, we can understand that contract costing is essentially a form of job costing. The cost of each contract is calculated separately. The work mainly involves a constructional activity. They are of a long duration.
Just like job costing, the cost of each contract has to be ascertained separately. Treatment of items of expenses in contract accounts is explained in detail as follows (otherwise, steps in contract-costing procedure):
Step 1: Separate Number: Each contract is assigned a separate job number.
Step 2: Separate Account: A separate contract is to be opened and maintained for each contract.
Step 3: Charging Costs: All costs with respect to a particular contract are charged to respective contract accounts.
Step 4: Collection of Costs.
At the end of each accounting period, the written-down value of the plant is credited to the contract account.
The difference between these represents the cost or the value for the use of plant.
The contractors, at times, entrust some part of the work to petty contractors at a predetermined, agreed rates. Payments to such sub-contractors are charged to respective contract accounts.
Contracts are classified into:
Contracts of some nature extend over a long period, covering more than a few accounting periods. During such a lengthy period, there may be changes in the prices of materials, labour, and so on. At the time of acceptance of a contract, such factors have to be foreseen and estimated properly. If such factors are not taken into account, then the contractor may not be able to attain the profit target; and on account of this, even the work may come to a standstill. In order to safeguard against this, a special clause known as “escalation clause” is incorporated in fixed-price contracts. Escalation clause is a provision in a contract which provides the formula to determine the amount of escalation, namely, the amount by which the contract price is to be modified when the prices of goods or services forming part of the contract change.
Contracts with escalation clause are beneficial to both contractor as well as the contractee in case of high rise in the prices of materials, labour or other services. It protects the contractor from cost increases. At the same time, the customer is freed from paying more amounts unnecessarily. All future deliveries are governed by this clause.
Under this type of contract, the contractee agrees to pay the contractor the contract price plus an agreed percentage above the contract price or a fixed fee. Cost-plus contracts are generally used in Government only.
As already stated, contracts may extend beyond an accounting period. In practice, it may be found that only a certain portion of the contract has been completed and the remaining is under progress. It may take time to complete. So, proper care should be taken while ascertaining the profits for the completed as well as the incomplete work. There is no problem in crediting the profit on the completed work to profit and loss account (P&L A/c). But the real difficulty arises in assessing the profit for the contracts who are still under progress.
Standard costing principles should be adopted for the recognition of profit for each period. In case of incomplete contracts, only a certain portion of the profit can be taken to P&L A/c based on the work completed. The firm must provide for the unforeseen losses and contingencies. The following are the general guidelines that may be followed for the assessment of profit on incomplete contracts:
Formula:
Formula:
Formula:
Contract A/c (With total profit) Dr …
To P&L A/c (with profit transferred)……
To WIP A/c (with profit kept as reserve)…
In contract accounts, the value of work-in-progress consists of the following two items:
These are shown on the Assets side of the Balance sheet under “Current Assets” as depicted in the following:
Certification of work and “Retention Money”
Although there are two approaches to deal with the value of the work certified and the consequent payment, the most common approach is as follows:
WIP Dr
To Contract A/c.
Bank A/c Dr
To Contractee’s A/c.
Work Uncertified:
Simple Problems (Basic)
Illustration 9.1
1. Model: Simple Finished Contracts
The following are the expenses of Renu & Co in respect of a contract which commenced on 1 April 2009.
Rs. | |
---|---|
Materials Purchased |
60,000 |
Materials on hand |
5,000 |
Direct wages |
80,000 |
Plant issued |
50,000 |
Direct expenses |
30,000 |
The contract price was Rs. 5,00,000 and the same was duly received when the contract was completed in December 2009. The charge indirect expenses at 10% on direct wages provide a 10% depreciation on the plant per annum.
You are required to prepare the contract A/c and the Contractee’s A/c.
Solution
Step 1 Open a Contract A/c (Ledger).
Step 2 Debit all the expenses (Expenses are to be entered on the debit side of the contract A/c)
Basic calculation:
= 10% of Rs. 80,000.
= 10/100 × 80,000 = Rs. 8,000.
= April to December = 9 months.
= 10/100 × 9/12 × 50,000 = Rs. 3,750.
Step 3 Credit the contract price and materials on hand (These items are to be entered on the credit side of the A/c).
Step 4 Balance the figures. The balancing figure is profit or loss depending on the problem.
Step 5 Open a Contractee’s A/c. The contractor price is entered as ‘To Contract A/c’ on the debit side and “By Bank” on the credit side.
Illustration 9.2
Model 2: Treatment of Plant
2. From the following information, you are required to show the treatment of plant in contract A/c:
Solution
Step 1: Plant issued is to be debited to contract A/c.
Step 2: Plant costing Rs. 10,000 that was transferred to another contract is to be credited to contract A/c after providing depreciation as follows:
Plant transferred: Rs. 10,000. |
|
Less: depreaction @ 10% p.a. |
|
|
= |
|
= Rs. 500. |
Step 3: Plant stolen and destroyed are to be transferred to be P & L A/c and credited to contract A/c at Rs. 5,000 + Rs. 4,000.
Step 4: Plant sold at Rs. 5,000 is credited to contract A/c. Its cost is Rs. 3,000 but sold for Rs. 5,000. So, there is a profit of Rs. 2,000 (Rs. 5,000 – Rs. 3,000). This profit on the sale of the plant is transferred to P&L A/c and debited to contract A/c.
Step 5: Plant at site is to be shown as follows:
Cost of plant at the end |
= |
Rs. 2,00,000 − Rs. 5,000 (stolen) |
|
|
−Rs. 4,000 (destroyed)− |
|
|
Rs. 10,000 (Transferred) − |
|
|
Rs. 3,000 (Plant sold) |
|
= |
Rs. 1, 78,000. |
Step 6: depreciation per annum @ 10% has to be provided =17,800
(Assume that the plant was stolen and destroyed at the beginning. If date is given, then depreciation for the respective period has to be calculated.)
Step 7: Preparation of contract A/c:
Illustration 9.3
Model 3: Transfer of profit: Unfinished contract
3. The following expenses were incurred on an unfinished contract during the year 2009:
Materials |
85,000 |
Wages |
65,000 |
Other expenses 15,000 |
|
Rs. 2,00,000 was received from the contractee, being 80%of the work certified. Work done but not certified was Rs. 15,000. Determine the profit to be credited to P&L A/c in the alternatives given as follows:
Solution
Step 1: Calculation of work—certified:
Method I:
80% work certified |
= |
Rs. 2, 00,000 |
100% work certified |
= |
? |
|
|
|
(Or) |
= |
Rs. 2,50,000. |
Method II: Cash received = 80%of work certified
If cash received is 80, then the work certified = 100
If cash received is Rs. 2, 00,000, then the work certified
NOTE: Any method may be adopted.
Step 2: Preparation of contract A/c
Step 3: This is the crucial step.
The ratio of work certified to total contract price has to be calculated.
Percentage (Ratio) for case (a): Contract Price: Rs. 15,00,000.
That is, work certified is less than 25%.
Important Note
If the work certified is less than 25% (or 1/4th)—No profit should be taken to P&L A/c as per the principles that are to be adopted in dealing with an incomplete contract.
Hence, in this case (a), no profit is taken to P&L A/c.
∴ the entire notional profit of Rs. 1, 00,000 is kept in Reserve.
Step 4: Case (b) Contract price – Rs. 6,00,000.
Important Note
If the work certified is less than 50% but mote than 25%, then the profit to be transferred is to be ascertained by applying the formula:
Profit to be credited to P&L A/c = Rs. 26,666.66.
Balance amount from profit = Rs. 1,00,000 – Rs. 26,666.66
= 73,333.34 which is to be kept as Reserve.
Step 5: Case (c) Contract price is Rs. 3, 25,000.
Important Note
If the work certified is more than 50% of the contract price, then the profit to be credited is determined by applying the formula:
Profit to be credited to P&L A/c = Rs. 53,333.33
Balance to be kept as reserve = Rs.1,00,000 – Rs. 53,333.33
= Rs. 46,666.67.
Illustration 9. 4
Model: 4 Computation of work uncertified
4. Vasanth Construction Co. has undertaken a contract for construction of a Conference Hall in a Star Hotel for a total value of Rs. 72 lakhs on 1 January 2009. It was estimated that the contract would be completed by 30 June 2010. You are required to prepare a contract A/c for the year ending 31 December 2009 from the following information:
Rs. | |
---|---|
Wages |
18,00,000 |
Materials |
9,00,000 |
Materials at site (on 31 December 2009) |
1,00,000 |
Special plant |
5,00,000 |
Overheads |
3,60,000 |
Work certified |
50,00,000 |
Depreciation at 10% per annum on the plant.
Cash received is 80% of the work certified, 10% of the value of materials issued, and 6% of the wages that may be taken to have been incurred for the portion of the work completed but not yet certified. Overheads that are charged as percentage of direct wages have been incurred for the portion of work completed but not yet certified. Overheads are charged as percentage of direct wages.
Solution
Step 1: Value of uncertified work is to be ascertained, which is added to work certified and shown as WIP on the credit side of the contract A/c in order to determine Notional Profit Expenses incurred:
Rs. | |
---|---|
(i) Materials – 10% of materials to be included in the completed work 10% of Rs. 9,00,000 |
90,000 |
(ii) Wages – 6% of wages – to be taken into account.6% of Rs.18,00,000 |
1,08,000 |
(iii) Overheads as percentage of direct wages: |
21,600 |
(iv) Work uncertified: (Add i + ii + iii) |
2,19,600 |
Step 2: As work certified is more than 50 % of the contract price, the formula to transfer Notional Profit to P&L A/c has to be applied
Step 3: |
Depreciation has to be found out: |
|
|
Plant: |
Rs. 5,00,000 |
Less: |
Depreciation @ 10%: 50,000 |
50,000 |
|
|
Rs. 4,50,000 |
Step 4: Preparation of contract A/c:
Illustration 9.5
Model 5: Estimated Profit & Transfer to P&L A/c
(Contract is nearing completion)
5. The expenditure on a contract till 31 March 2010 was Rs. 5,00,000 and the work certified was Rs. 8,00,000. The contract price is Rs. 10,00,000 and the contractee has paid Rs. 7,00,000 till 31.3.2010. The cost of work done but not certified on that date amounted to Rs. 1,00,000.
It is estimated that the contract will take a further period of 3 months to complete and will necessitate an additional expenditure of Rs. 1,00,000.
You are required to ascertain the amount to be credited to P&L A/c on 31 March 2010. Also state the different amounts of profit that may reasonably be credited to the P&L A/c.
Solution
STAGE I: First, the notional profit is to be determined by preparing the contract A/c as follows:
Step 1: As expenditure to complete the contract is given in the question and as the contract is nearing completion too, the estimated profit has to be determined as follows:
Rs. | |
---|---|
(i) Total cost of contract |
5,00,000 |
Add:(ii) Additional estimated expenditure to complete contract |
1,00,000 |
(iii) Estimated total cost of contract (i) + (ii) |
6,00,000 |
(iv) Contract price (given) |
1,00,000 |
(v) Estimated profit step(iv) – step(iii) |
4,00,000 |
Step 2: This estimated profit of Rs. 4,00,000 may be credited to P&L A/c by any one of the following ways:
Approach I: Formula:
Substituting the values in the above formula, we get:
Rs.3,20,000 is to be transferred to P&L A/c and the balance (Rs. 4,00,000 – Rs. 3,20,000) Rs. 80,000 has to be kept in reserve.
Approach II: Formula to transfer part of estimated profit to P&L A/c is:
Substituting the values in the above formula, we get:
Rs.2,80,000 is to be credited to P&L A/c and the balance (Rs. 4,00,000 – Rs. 2,80,000) Rs.1,20,000 has to be kept in reserve.
Approach III: Formula:
Substituting the values in the above formula, we get:
Rs. 3,33,333.33 is to be credited to P&L A/c and the balance (Rs. 4,00,000 – Rs. 3,33,333,33) Rs. 66,666.67 is to be kept in reserve.
Approach IV: Formula:
Substituting the values in the above formula, we get:
The balance (Rs. 4,00,000 – Rs. 2,91,666.67) Rs.1,08,333.33 is to be kept in reserve.
Illustration 9.6
Model: Computation of Profit & WIP
BMR & Co. Ltd, a contractor, is currently engaged in the construction of a Mall in one of the Metros. From the following information as on 31 December 2009, you are required to calculate:
Rs. in ‘000 | |
---|---|
Direct expenses |
10,000 |
Materials sent to site for construction |
20,000 |
Plant issued to site |
1,200 |
Plant returned from site |
1,000 |
Materials returned to stores |
2,000 |
Labour working in site |
12,000 |
Material remaining in site |
8,000 |
Outstanding wages |
1,000 |
Uncertified work |
48,000 |
Certified work |
60,000 |
Cash received |
50,000 |
Establishment cost |
1,000 |
Contract price |
1,30,000 |
Solution
Prepare the contract account first as follows:
*1 Stage of completion of work is calculated as:
Step 1: Formula:
Step 2: Substituting the values in the formula we get,
Step 3: This is >25% but <50%.The formula to ascertain profit to be credited to P&L A/c is
Step 4: Substitute the values, we get:
Step 5: Rs. 20,500 is to be transferred to P&L A/c.
Step 6: Balance (Rs. 73,800 – Rs. 20,500) = Rs. 53,300 is to be transferred to WIP (Reserve).
II: Calculation of WIP as on 31 December 2009:
Rs. in ‘000 | |
---|---|
Step 1: Work certified |
60,000 |
Step 2: Work uncertified |
48,000 |
Step 3: Add (Step 1+Step 2) |
108,000 |
Step 4: Less: Provision (Ref: Contract A/c: WIP) |
53,300 |
|
54,700 |
|
50,000 |
Step 5: Less: Cash received 5 |
50,000 |
Step 6: WIP at the end of the year |
4,700 |
Illustration 9.7
Model: Estimated Profit on Completion of Contract
VRS Ltd is engaged in construction of a Flyover Project in Chennai. From the following information as on 31 March 2010 you are required to calculate:
Contract price |
Rs.40,00,000 |
Work certified |
Rs.20,00,000 |
Uncertified work |
Rs.10,00,000 |
Surveyor’s estimation of work completed:
Direct labour |
50% |
Direct materials |
80% |
Overheads |
50% |
Materials sent to site |
Rs.5,00,000 |
Labour |
Rs.2,80,000 |
Overhead |
Rs.3,20,000 |
Materials in hand |
Rs.1,00,000 |
Solution
(Based on the estimate of the work completed)
(a)
1. Calculation of profit transferred to P&L A/c:
Step 1: The stage of completion is computed by using the following formula:
Step 2: Work has reasonably advanced to 50%.Formula to ascertain the profit to be credited to P&L A/c is:
Step 3: Substituting the values we get:
Step 4: WIP:
Balance (Rs. 20,00,000 – Rs. 10,66,667) = Rs. 9,33,333.33.
(b) Estimated profit on the completion of contract is to be computed
(c) Calculation of WIP as on 31 March 2010
Rs. | |
---|---|
Step 1: Work certified |
20,00,000 |
Step 2: Uncertified Work |
10,00,000 |
Step 3: Add (Step 1 + Step 2) |
30,00,000 |
Step 4: Less: Provision (Ref: Contract A/c:) |
9,33,333 |
|
20,66,667 |
Step 5: Less: Cash received |
16,00,000 |
Step 6: W.I.P. at the end of the year |
4,66,667 |
Illustration 9.8
Model: Calculation of Profit
The total contract price of a contract is Rs. 80,000. Three-fourth of the work has been approved by the contractee. The costs incurred so far for the contract are Rs. 40,000.It is estimated that Rs. 20,000 will be required further to complete the contract. The contractee pays 75% of the work certified by him.
Solution
|
|
Rs. |
(a) Step 1: Contact price |
|
80,000 |
Step 2: Less: Total estimated costs |
Rs. |
|
(i) Costs incurred: |
40,000 |
|
(ii) Costs estimated to be incurred: |
20,000 |
60,000 |
Step 3: Total estimated profit (Step 1 – Step 2) |
|
20,000 |
Step 4: Profit to be credited to P&L A/c: |
|
|
(b) It the estimated further costs are not given:
Profit |
= |
Value of work certified – cost of work certified |
|
= |
Rs. 60,000 (3/4 of Rs. 80,000) − Rs. 40,000 (cost incurred) |
|
= |
Rs. 20,000. |
Illustration 9.9
Model: Profit on Contract
Vijay & Co. obtained a contract for the construction of a residential building of Rs. 9,00,000.Building operations are started on 1 April 2009 and at the end of the financial year, that is, 31 March 2010, they received from the party a sum of Rs. 3,60,000 being 80% of the amount of the surveyor’s certificate. The following additional information is available:
Rs. | |
---|---|
Stores issued to contract |
1,80,000 |
Stores on hand as on 31 March 2010 |
15,000 |
Wages paid |
2,46,000 |
Plant purchased for the contract |
30,000 |
Direct expenses |
12,900 |
Plant to be depreciated @ 10% |
|
You are required to prepare an account showing profit on contract up to 31 March 2010. Also discuss whether Vijay & Co. would be justified in taking the full amount of this profit to the credit of their P&L A/c.
Solution
STAGE I: (i) First, the work certified is calculated as follows:
Cash received by the contractor = Rs.3,60,000
This is 80%of the Surveyor’s Certificate.
80%of the work certified = Rs.3,60,000
100% of the work certified |
= |
x (assumption) |
80% × x |
= |
100% × Rs. 3,60,000 |
|
|
|
|
= |
Rs. 4,50,000. |
∴ Value of work certified |
= |
Rs. 4,50,000. |
(ii) Contract work has not been completed but has been advanced reasonably, that is, 50% . Hence, the company is not entitled to credit the entire amount to P&L A/c. The formula to be used is
STAGE II: Preparation of Contract Account
STAGE III: Profit to be transferred to P&L A/c
Step 1: Write the formula to Compute Profit. (The work has been advanced to 50%.)
Model: Retention Money & Normal Loss of Materials
Illustration 9.10
A public works contractor secured a contract at a price of Rs. 10,00,000. The work began on 1 July 2009 and the contract ledger showed the following items debited up to 31 March 2010:
Rs. | |
---|---|
Materials |
1,80,000 |
Wages |
2,10,000 |
Direct charges |
10,000 |
Plant |
32,000 |
The measurement on March 31 reads as follows:
Rs. | ||
---|---|---|
Total work done certified till date |
|
4,80,000 |
Total work done as per last measurement |
|
4,20,000 |
Total work done for the month |
|
60,000 |
Less: Retention Money@ 10% |
|
6,000 |
|
|
54,000 |
Materials returned to stores |
Rs. |
|
Materials on site: |
10,000 |
|
Less: 20% |
2,000 |
8,000 |
Amount payable |
|
62,000 |
You are required to prepare a proforma account for the contract showing the profit earned till date, and indicate by means of a note on the basis of which you arrive at the amount which might be credited to P&L A/c. Allow for a depreciation on the plant @ 10% per annum.
Solution
Basic calculations:
*1(i) Depreciation on the plant:
*2(ii) Cash received: Work certified –Retention money
= Rs. 4,80,000 − (10% of 4,80,000) 48,000
= Rs. 4,32,000.
STAGE III: Calculation of profit to be transferred to P&L A/c:
Step 1: Stage of completion of work is calculated as follows:
Formula:
Substituting the values, we get:
Step 2: As the value of work is less than 50%, the formula to be used for crediting profit to P&L A/c is:
Substituting the values we get,
Step 3: Amount of profit to be transferred to P&L A/c is Rs. 25,680.
Step 4: Balance of notional profit, that is, Rs. 85,600 – Rs. 25,680 = Rs. 59,920 is to be transferred to WIP and kept as a reserve to meet the contingencies.
Illustration 9.11
Model: Balance Sheet Entries
A company undertook a contract for construction of large housing apartments. The construction work commenced on 1 January 2009 and the following data are available for the year that ended on 31 December 2009.
Rs.(in ‘000) | |
---|---|
Contract price |
70,000 |
Work certified |
40,000 |
Progress payments received |
30,000 |
Materials issued to site |
15,000 |
Planning and estimate costs |
2,000 |
Direct wages paid |
8,000 |
Materials returned from site |
500 |
Plant hire charges |
3,500 |
Wage-related costs |
1,000 |
Site-office costs |
1,356 |
Head-office expenses apportioned |
750 |
Direct expenses |
1,804 |
Work uncertified |
298 |
The contractors own a plant which originally cost Rs. 40 lakhs and it has been continuously in use in this contract throughout the year. The residual value of the plant after 5 years of life is expected to be Rs.10 lakhs. Straight Line Method of depreciation is in use.
As on 31 December 2009, the direct wage that is due and payable amounted to Rs.5,40,000 and the materials at site were estimated at Rs.4,00,000.
Solution
Basic calculations:
∴ Plant at site = Rs.40,00,000 – Rs.6,00,000 = Rs.34,00,000.
*1NOTE:
Students should thoroughly understand these steps (of the plant), while preparing the contract Account.
Wages paid: Rs.80,00,000
Add: Due as on 31 December 2009: Rs.5,40,000
Rs.85,40,000 = or Rs.8,540 (in’000)
Now, contract Account is to be prepared as follows:
STAGE II: Calculation of profit to be undertaken to P&L A/c
Step 1: Stage of completion of work
Substituting the values, we get:
Step 2: As the work has reached an advanced level,
i.e., >50%, the formula used is:
Substituting the values,
Hence, the amount to be transferred to P&L A/c = Rs.3,324
Step 3: The balance (Rs.6,628 – Rs.3,324) = Rs.3,324 is to be transferred to WIP, to be kept as a reserve to meet the contingencies.
STAGE III: Extracts from Balance Sheet is to be shown as follows:
Illustration 9.12
Model: Contractee Account Retention of % for a specified period
XL & Co. Ltd has undertaken the construction of a bridge over the River Cauvery for Trichy Municipal Corporation. The value of the contract is Rs. 50,00,000 subject to a retention of 20% until one year after the certified completion of the contract and the final approval of the Corporation engineer. The following are the details as shown in the books on 31 December 2009:
Rs. | |
---|---|
Labour on site |
16,20,000 |
Materials direct to site Less returns |
16,80,000 |
Materials from store |
3,24,800 |
Hire and use of plant—plant upkeep Account |
48,400 |
Direct expenses |
92,000 |
General overhead allocated to the contract |
1,48,400 |
Materials in hand on 30 June 2009 |
25,200 |
Wages accrued on 30 June 2009 |
31,200 |
Direct expenses accrued on 30 June 2009 |
6,400 |
Work not yet certified at cost |
66,000 |
Amount certified by the Corporation engineer |
44,00,000 |
Cash received on account |
35,20,000 |
You are required to prepare
Solution
NOTE 1: Calculation of profit to be taken to P&L A/c: As values of work completed has reached the advance level, the formula that is to be used is as follows:
Balance (Rs. 5,40,000 – Rs. 2,88,000) = Rs.2,52,000 has to be transferred to WIP and kept as a reserve to meet the contingencies.
NOTE 2: Total profit made to date may be arrived at by another approach:
Rs. | ||
---|---|---|
Total expenditure on the contract: |
|
39,51,200 |
Less: Value of materials in hand |
|
25,200 |
|
|
39,26,000 |
Value of work certified = |
44,00,000 |
|
Value of work uncertified = |
66,000 |
44,66,000 |
Total profit to be made (difference) |
|
5,40,000 |
∴ Profit to be transferred: 2/3 × 5,40,000 × 80/100 |
|
Rs.2,88,000 |
Profit to be carried forward to reserve = |
|
Rs. 2,52,000 |
NOTE 3: Value of WIP:
Rs. | |
---|---|
Value of work certified: |
44,00,000 |
Value of work uncertified |
66,000 |
|
44,66,000 |
Less: Reserve (Note:2) |
2,52,000 |
|
42,14,000 |
Based on the Notes 2 & 3, and if it is desired that the contract work should show the value of WIP and only the amount of profit has to be taken to P&L A/c, then the contract account will vary accordingly and appears as follows:
Important Note
Now, the students may note the difference in the approaches of preparing contract A/c—if WIP is to be shown in the contract A/c, then this procedure has to be adopted. That is, from Note 2 to preparation of contract A/c, that is, this stage. Otherwise, students could follow the usual procedure up to Note-1 stage in this solution.
(b) Preparation of Contractee’s Account
(c) Items to be shown in the Balance Sheet
Illustration 9.13
Model: Contract A/c & Contractee’s A/c for 2 years
RBS Ltd took up a construction work of a building at a contract price of 30,00,000. During the first year, the following amounts were spent as against a sum of Rs. 11,25,000 which represented 90% of the work certified and received by the contractor.
|
Rs. |
Materials |
5,25,000 |
Wages paid to workers |
3,00,000 |
Overhead expenses |
75,000 |
During the second year, the firm spent the following amounts:
|
Rs. |
Materials |
7,50,000 |
Labour cost |
6,00,000 |
Overhead expenses |
1,50,000 |
In the second year, the contract was completed and a sum of Rs.17,50,000 was received by the contractor. Prepare the contractor and contractee’s account for both the years and calculate the profit.
NOTE: Consider only 2/5th of the notional profit that is to be taken to the credit of the profit and loss in the first year, as the work done is less than 50%.
[I.C.W.A. Inter – Modified]
Solution
As specific instruction is given (in the illustration—i.e., Question), instead of 1/3rd in the usual procedure, 2/5th of the notional profit has to be considered for taking into P&L A/c.
(a) Contract Account for the first year.
(b) Contract Account for the second year
(c) Contractee’s Account at the end of the first year
(d) Contractee’s Account at the end of the Second year
Illustration 9.14
Model: Plant & Materials loss
Vas Ltd. was engaged on a contract of which the contract price was Rs. 10,00,000, on 1 January 2009.
Of the plant and materials charged to the contract, the plant which costs Rs. 10,000 and materials which cost Rs. 8,000 were lost in an accident.
On 31 December 2009, the plant which costs Rs. 10,000 was returned to the store, the cost of work done but uncertified was Rs.4,000 and the materials costing Rs.8,000 were in hand on site.
Charge 10% depreciation on the plant, crediting two-thirds of profit received with P&L A/c and compile a contract Account and Balance sheet from the following:
Rs. | Rs. | |
---|---|---|
Share capital |
|
2,40,000 |
Creditors |
|
20,000 |
Cash received on contract – 80% of work certified |
|
4,00,000 |
Land and Building |
86,000 |
|
Bank balance |
50,000 |
|
Charged to contract: |
|
|
Materials |
1,80,000 |
|
Plant |
50,000 |
|
Wages |
2,80,000 |
|
Expenses |
|
14,000 |
|
6,60,000 |
6,60,000 |
Solution
*1 Profit to be transferred to P&L A/c
= × Notional Profit ×80%
= × Notional Profit ×80/100
Balance (Rs.42,000 – Rs.22,400) Rs. 19,600 is to be transferred to WIP and kept as a reserve to meet contingencies.
Illustration 9.15
Model: Two Contracts & Material transfer from one to another
RR Construction Ltd is engaged on two contracts, Contract No, 105 and 106 during the year 2009. The following particulars are obtained at the end of the year 31 December 2009.
Contract 105 Rs. | Contract 106 Rs. | |
---|---|---|
Contract price |
3,00,000 |
2,50,000 |
Materials issued |
80,000 |
30,000 |
Materials returned |
2,000 |
1,000 |
Materials on site |
11,000 |
4,000 |
Direct labour |
75,000 |
21,000 |
Direct expenses |
33,000 |
17,500 |
Establishment expenses |
12,500 |
3,500 |
Plant installed at cost |
40,000 |
35,000 |
Value of plant (December 31) |
32,500 |
32,000 |
Cost of work not yet certified |
11,500 |
5,000 |
Value of work certified |
2,10,000 |
67,500 |
Cash received from contractees |
1,89,000 |
62,500 |
Architect’s fees |
1,000 |
500 |
During the period, materials amounting to Rs. 4,500 have been transferred from Contract 105 to Contract 106. The date of commencement of Contract No.105 is 1 April and Contract No. 106 is1 September. You are required to show:
[I.C.W.A. (Inter) – Modified]
Solution
1.
* Profit to be transferred to P&L A/c has been arrived at as:
Balance (Rs. 30,000 – Rs. 18,000): Rs. 12,000 is transferred to WIP.
1.
2.
2.
(a) For Contract 105: | Rs. |
---|---|
Work certified |
2,10,000 |
Work uncertified |
11,500 |
|
2,21,500 |
Less: Reserve |
12,000 |
|
2,09,500 |
Less: Cash received |
1,89,000 |
*1WIP for 105 = |
20,500 |
(b) For Contract 106: | Rs. |
---|---|
Work certified |
67,500 |
Work uncertified |
5,000 |
|
72,500 |
Less: cash received |
62,500 |
*2WIP for 106 = |
10,000 |
3. Extracts from Balance sheet as on 31 December 2009
FOR PROFESSIONAL COURSE
Recognition of Profits on Incomplete Contracts:
Accounting Standard (AS) – 7 – Revised 2002
The main principle envisaged in (AS) – 7 – Revised is explained as follows:
Particulars | Rs. | Rs. |
---|---|---|
TOTAL CONTRACT VALUE LESS: |
|
– |
(i) Costs incurred to date |
– |
|
(ii) Estimated future costs to complete the work |
– |
|
(iii) Estimated cost of Rectification and Guarantee work |
– |
|
TOTAL ESTIMATED COST OF CONTRACT |
|
– |
ESTIMATED PROFIT/LOSS ON CONTRACT |
|
– |
Rs. | |
---|---|
Profit to date |
– |
Less: Profit recognized at the end of the previous period = |
– |
Profit recognized in the CURRENT PERIOD = |
– |
Illustration 9.16
The following cost data relate to a construction company:
Rs. | |
---|---|
Contract price |
50,00,000 |
Cumulative figures: |
|
To end of previous period – Profit recognized: |
2,00,000 |
To end of current period – Total costs: |
25,00,000 |
Cost of work certified: |
20,00,000 |
Estimate future costs to completion: |
15,00,000 |
Estimated rectification costs, 10% of contract price |
|
You are required to calculate:
Solution
Particulars | Rs. | Rs. |
---|---|---|
(a) TOTAL CONTRACT VALUE |
|
50,00,000 |
Less: (i) Cost incurred to date |
25,00,000 |
|
(ii) Estimated future cost to complete contract |
15,00,000 |
|
(iii) Estimated cost of rectification(10% of contract price) |
5,00,000 |
|
(b) Total estimated costs of contract |
|
45,00,000 |
*(c) Estimated contract profit (a) – (b) |
|
5,00,000 |
Substituting the values in the above formula, we get:
Rs. | |
---|---|
Profit to date |
2,22,222.22 |
Less: Profit recognized at the end of previous period (given); |
2,00,000.00 |
∴ Profit in current period: |
22,222.22 |
Illustration 9.17
Model: Estimated Profit
A fabrication company undertakes long-term contracts which involve the fabrication of pre-stressed concrete blocks and the erection of the same on the construction site:
The following information is supplied regarding the contract which is incomplete on 31 March 2010:
Rs. | |
---|---|
Cost incurred: |
|
Fabrication costs to date: |
8,40,000 |
Direct materials |
2,70,000 |
Direct labour |
2,25,000 |
Overheads |
13,35,000 |
Escalation costs to date |
45,000 |
Total |
13,80,000 |
Contract price |
24,57,000 |
Cash received on account |
18,00,000 |
Technical estimate of work complete to date: |
|
Fabrication: |
|
Direct materials: 80% |
|
Direct labour & overheads = 75% |
|
Erection = 25% |
|
You are required to prepare a statement of
[I.C.W.A. Inter – Modified]
Solution
Statement showing
* Estimated profit is to be calculated as follows:
(i) Estimated profit to date:
Contract price – Total cost = Total estimated profit
Rs. 24,57,000 – Rs. 18,90,000 = Rs. 5,67,000.
Illustration 9.18
Model: Actual & Estimate Contract Particulars—Ascertainment of Profit.
VPR Ltd commenced a contract on 1 January 2009. The total contract was Rs. 40,00,000 (estimated by the contractee) and was accepted by VPR Ltd at 10% less. It was decided to estimate the total profit and take to the credit of P&L A/c that the proportion of estimated profit on cash basis which the work completed bore to the total contract price. Actual expenditure in 2009 and estimated expenditure in 2010 are given as follows:
2009 Actual Rs. | 2010 Estimated Rs. | |
---|---|---|
Materials |
6,00,000 |
10,40,000 |
Labour: Paid |
4,00,000 |
4,80,000 |
Accrued |
40,000 |
– |
Plant purchased |
3,20,000 |
– |
Expenses |
1,60,000 |
– |
Plant returned to store (on cost) |
80,000 |
2,00,000 |
|
on 31 December 2009 |
on 30 September 2010 |
Materials at site |
40,000 |
– |
Work certified |
16,00,000 |
Full |
Work uncertified |
60,000 |
– |
Cash received |
12,00,000 |
Full |
The plant is subjected to annual depreciation @ 20% of cost. The contract is likely to be completed by 30 September 2010. You are required to prepare the contract Account.
[C.A. (Inter) – Modified]
Solution
Hint:
4. Contract Account is to be prepared based on the figures relating to Actual, i.e., 2009.
5. Profit to be taken to P&L A/c is to be determined after preparing the estimated contract account.
6. The estimated contract account is to be prepared based on the figures relating to actual and estimated.
*1 Profit to be taken to P&L A/c in 2009 contract Account.
NOTE: Accrued wages for 2009 would be paid in 2010. So, the wages for 2010 actually are Rs. 4,40,000.
PROFESSIONAL COURSES (ADVANCED-LEVEL PROBLEMS)
Illustration 9.19
PVS contractors has been engaged in a construction work. The contract price being Rs. 8,00,000. Work commenced on 1 January 2009 and the expenditure during the year were: Plant and tools – Rs. 40,000, Stores and materials = Rs. 1,44,000, Wages – Rs. 1,30,000, Sundry expenses – Rs. 10,600 and Establishment charges – Rs. 23,400.
Certain materials costing Rs. 24,000 were unsuited to the contract and were sold for Rs. 29,000. A portion of the plant was scrapped and sold for Rs. 4,600.
The value of the plant and tools on the sites on 31 December 2009 was Rs. 12,400 and the value of stores and materials on hand was Rs. 6,800. Cash received on account was Rs. 2,80,000 representing 80% of the work certified. The cost of the work done but not yet certified was Rs. 43,800; and this was certified for Rs. 50,000.
PVS contractors decided
You are required to prepare the contract account for the year ended 31 December 2009 and show your calculation of the amount credited to P&L A/c for the year.
[C.S. (Inter) – Modified]
Solution
I Basis calculations:
1. Calculation of work certified
Cash received by the contractor: Rs. 2,80,000.
80%of the value of work certified: Rs. 2,80,000
100%of the value of work certified
*1 (Ref: Total estimated Profit calculation).
*12. Calculation of Profit to be transferred to P&L A/c.
As per the direction in the problem, the profit is to be estimated as follows:
Balance Rs. 45,466 (Rs. 93,600 – Rs. 48,134) is to be kept as a reserve.
Illustration 9.20
Model: Three Contract Accounts
Three contracts x, y and z commenced on 1 January, 1 July and 1 October 2009, respectively, were undertaken by ABC Ltd, and their accounts on 31 December 2009 showed the following position:
The plant was installed on the date of commencement of each contract, and depreciation is to be taken at 10%p.a.
You are required to prepare the contract accounts in a tabular form and show how they would appear in the Balance Sheet as on 31 December 2009.
[C.S. (Inter) – Modified]
Solution
Calculations: 1. Depreciation on Plant
Illustration 9.21
Model: Profit to be taken to P & L A/C Different methods
An expenditure of Rs. 3,88,000 has been incurred on a contract to the end of 31, March 2010. The value of work certified is Rs. 4,40,000. The cost of work done but not yet certified is Rs. 12,000. It is estimated that the contract will be completed by 30 June 2010, and an additional expenditure of Rs. 80,000 will have to be incurred to complete the contract. The total estimated expenditure on the contract is to include a provision of 2½%for contingencies. The contract price is Rs. 5,60,000 and Rs. 4,00,000 has been realized in cash upto 31 march 2010.
You are required to calculate the proportion of profit to be taken to the profit and loss Account as on 31 March 2010 under different methods.
[B.Com (Hons)-Delhi
C.S. (Inter)-I.C.W.A. (Inter)
M.Com Madras University]
Solution
The Notional Profit is to be transferred to P & L A/C: (2/3 because the contract has reached the reasonable level of completion i.e > 50%)
Method I:
Method II:
Method III: Computation of Estimated Profit
Estimated profit may be calculated in the following different methods:
Rs. | ||
---|---|---|
Contract price |
|
5,60,000 |
Less: Cost incurred (total exp.) |
3,88,000 |
|
Estimated additional cost |
80,000 |
|
Provision for contingencies (3,88,000 + 80,000)× |
12,000 |
4,80,000 |
∴ Estimated profit = |
|
80,000 |
Profit to be transferred to P & L A/c are to be calculated as follows:
Method IV:
Method V:
Method VI:
Results will vary on account of basis applied for apportionment of profit that is to be taken to P&L A/c.
Illustration 9. 22
Model: Cost Escalation claim
VRV Ltd undertook a contract for Rs. 10,00,000 on 1 June 2008. On 31 May 2009, when accounts were closed the following details were obtained:
Rs. | |
---|---|
Materials purchased |
2,00,000 |
Wages paid |
90,000 |
General expenses |
20,000 |
Plant purchased |
1,00,000 |
Materials on hand on 31 May 2009 |
50,000 |
Wages accured on 31 May 2009 |
10,000 |
Work certified |
4,00,000 |
Work certified |
4,00,000 |
Cash received |
3,00,000 |
Work uncertified |
30,000 |
Depreciation on plant |
10,000 |
The above contract contained an escalation clause which read as follows:
“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 work certified does not take into account the effect of the above clause.
You are required to prepare the contract account
[B.Com (Hons) – Delhi – C.A. (Inter);
[I.C.W.A. (Inter) C.S. – (Inter) – Modified]
Solution
NOTE:
STAGE I: Escalation charges are to be computed as under:
Step 1. Effect of increase in the price of materials:
Step (a) Material purchased = Rs. 2,00,000
Less: Materials in hand = Rs. 50,000
Materials consumed = Rs. 1,50,000
|
|
Rs. |
|
|
|
|
|
Step (c) Beyond 5% = [Step (a) – Step (b)] = 24,000
Step 2: Effect of increase in Wage Rate:
Step (a) Wages paid: |
Rs.90,000 |
Add: Accrued wages: |
Rs. 10,000 |
Total wages |
Rs. 1,00,000 |
Step 3: Total Increase: Rs.
Step 1(c) + Step 2 (c) (Rs. 24,000 + Rs. 16,000) = 40,000
*Step 4: Increase in contract = |
Rs |
Price: (25% increase beyond 5% level) = |
10,000 |
STAGE II: Preparation of Contract Account
Note: As the work completed falls – >25% but <50%, 1/3rd of profit earned has reduced on cash basis and transferred to P&L A/c.
Contract cost may be defined as the aggregate costs relative to a single contract designated a cost unit. Contract costing is a form of job costing.
Special features of contract costing: (i) construction activity (ii) work as customer’s site (iii) long duration (iv) work as per customer’s requirements (v) cost accumulation for each contract (vi) high risk and uncertainty and (vii) identifiable at each stage contract costing procedure. Ref: Text.
Types of contracts: (i) fixed price contract with Escalation clause & (ii) cost plus contract. Main features, advantages and disadvantages of each type is explained is detail. For guidelines to assess profit on incomplete contracts refer the text.
Special features of As-7 (Revised) relating to accounting for construction contracts are discussed in detail. Ref: Text. Value of WIP consists (i) work certified & (ii) work uncertified progress of work would be assessed by the customer’s engineer or surveyor who in turn would issue a certificate known as ‘work certified’. The customer would pay to the contractor on the basis of certificate. Usually the entire amount will not be paid. The balance of unpaid amount on the value of work certified is termed as ‘Retention money’. For accounting treatment refer the text.
Contract Costing: A form of specific-order costing which applies wherever work is undertaken to specific requirements of customers, work being long duration.
Fixed-Price Contract with Escalation Clause: To compensate the price rise in future, a special clause is incorporated into fixed-price contracts.
Cost-Plus Contracts: The actual allowable costs incurred in executing a contract plus an agreed percentage of these costs or a fixed fee payable to contractors.
Retention Money: The amount which the customer retains till the date of final completion of work.
Work Certified: Percentage of work completed to be approved by the contractee or his nominee, forming the basis for payment and profit computation.
Work Uncertified: Work would have been completed (to a certain percentage) but not approved by the contractee or his nominee.
Incomplete Contracts: Contracts that have not been completed and treated as WIP.
I: State whether the following statements are true or false
Answers:
1. True |
2. False |
3. True |
4. True |
5. False |
6. False |
7. False |
8. True |
9. True |
10. False |
11. True |
12. True |
13. False |
14. True |
15. False |
|
II: Fill in the blanks with apt word(s)
Answers:
III: Multiple choice question: choose the correct answer
Answers:
1. (a) |
2. (b) |
3. (c) |
4. (d) |
5. (a) |
6. (b) |
7. (c) |
8. (d) |
9. (a) |
10. (b) |
[Model: Treatment of Plant]
1. A plant costing Rs. 75,000 was issued to a contract on 1 January 2009. Plant costing Rs. 5,000 was transferred to another contract on 30 June 2009. A plant costing Rs. 2,500 was stolen. Another plant worth Rs. 2,000 was destroyed by fire. A plant costing Rs. 1,500 was sold for Rs. 2,000. Charge depreciation is @ 10%p.a. Ignore the depreciation for plant stolen, destroyed and sold. Show the extracts from contract Account relating to plant.
[Ans: Closing balance of plant Rs. 57,600
Depreciation on plant Rs. 6,400
Total debit to contract A/c Rs. 75,500
Total credit to contract A/c Rs. 68,850]
[Model: Treatment of WIP]
2. A contractor undertook a contract for Rs. 5,00,000 on 1 January 2009 to be completed over a period of two years. His accounting year ends on 31 December 2009. Show at value the WIP on 1 January 2010 which will appear in the contract A/c in each of the following cases:
[Ans:
[Model: Transfer to P&L A/c]
3. How much profit, if any, would you allow to be considered in the following case:
|
Rs. |
Contract cost |
11,20,000 |
Contract value |
20,00,000 |
Cash received |
10,80,000 |
Uncertified work |
1,20,000 |
Deduction made from bills by way of security deposit 10%
[Ans: Notional profit: Rs. 2,00,000
Profit to be considered: Rs. 1,20,000]
4. The following expenses were incurred on a contract that was still unfinished on 31 December 2009:
|
Rs. |
Materials |
1,50,000 |
Wages |
1,30,000 |
Other expenses |
95,000 |
Rs. 7,50,000 was received from the contractee being 75%of work certified. Work uncertified was Rs. 37,500. You are required to calculate the profit to be credited to P&L A/c:
[Ans: Notional Profit: Rs. 6,62,500
Profit to be transferred to P&L A/c:
[Model: Completed Contracts—Simple]
5. The following is the summary of transactions as on 31 December 2009, relating to a special contract completed during the year:
|
Rs. |
Materials purchased |
7,500 |
Materials issued from stores |
2,500 |
Wages |
12,200 |
Direct expenses |
1,470 |
Work on cost |
25% of direct wages |
Office on cost |
10% of prime cost |
Contract price |
Rs. 30,000 |
You are required to prepare a contract account keeping in view that material returned amounted to Rs. 1,200.
[Ans: Profit: Rs. 2,235 Office on cost: Rs. 2,245]
6. Geo Construction Co. undertook a contract for construction of a building from 1 July 2009. The contract price was Rs. 6,00,000. He incurred the following expenses:
|
Rs. |
Materials issued |
36,000 |
Materials in hand at the end |
6,000 |
Wages |
30,000 |
Direct expenses |
1,20,000 |
Plant purchased |
60,000 |
The contract was completed on 31 December 2009 and the contract price was duly received. Provide depreciation @ 20%p.a. on plant and charge indirect expenses @ 20%on wages. Prepare contract account in the books of the company.
[Ans: Profit: Rs. 4,08,000]
[Model: Incomplete Contracts (Loss on Contract)]
7. Vasant & Co. undertook a contract, the contract price being Rs. 3,00,000. The contract commenced on 1 January 2009. During the year the work certified was valued at Rs. 1,50,000 of which 75%was received. Work uncertified amounted to Rs. 30,000. The following expenses were incurred:
Materials – Rs. 90,000, Labour – Rs. 60,000, Plant – Rs. 30,000, Direct expenses – Rs. 24,000 and Indirect expenses – Rs. 15,000. At the end of the year wages accrued were Rs. 6,000, Materials in hand was Rs. 3,000 and plant in hand was Rs. 4,500. Prepare contract account.
[Ans: Loss on contract: Rs. 37,500]
[Model: When certified work is less than 25%of the contract price]
8. A construction company took a contract for the construction of a certain building on 1 January 2009. The contract price was agreed at Rs. 40,00,000. The company had made the following expenditure during the year:
|
Rs. |
Direct materials purchased |
1,00,000 |
Materials issued from stores |
1,50,000 |
Direct labour |
1,50,0000 |
Plant |
4,00,000 |
Direct expenses |
1,00,000 |
From the following information, prepare a contract account and find out the value of tender:
|
Rs. |
Direct materials purchased |
1,00,000 |
Value of plant on 31 December 2009 |
3,00,000 |
Stock of materials at site |
50,000 |
Materials returned to stores |
10,000 |
Cash received from contractee |
7,00,000 |
Cost of work not yet certified |
40,000 |
[As the work certified is less than th (25%) of the contract price, no profit would be taken to P&L A/c. WIP = Rs. 5,40,000]
[Model: Work certified is 1/4th or more than 1/4th but less than 1/2 of the contract price]
9. ‘x’ undertook several contracts and his ledger contained a separate account for each contract. On 30 June 2009, the account of the Contract No 108 showed the following amount expended there on:
|
Rs. |
Materials directly purchased |
2,70,000 |
Materials issued from stores |
2,40,000 |
Plant purchased |
10,80,000 |
Wages |
3,66,000 |
Direct expenses |
36,000 |
Proportion of establishment charges |
81,000 |
|
10,68,000 |
The contract price was for Rs. 22,50,000 and up to 30 June, Rs. 8,70,000 has been received in cash which represented the full amount certified less 20%as retention money. The materials on site unconsumed valued at Rs. 22,500. The contraction plant was to be depreciated by Rs. 24,000.
Prepare the contract account showing what profit thereon has been earned to date. And also state what amount should be taken to the P&L A/c of the period.
[Ans: Notional Profit: Rs. 2,58,000; Profit to be taken to P&L A/c = Rs. 68,799]
[Model: Value of work certified is 1/2 (50%) or more than 1/2 of the contract price.]
10. The following is the information relating to Contract No. 115.
|
Rs. |
Contract price |
12,00,000 |
Wages |
3,28,000 |
General expenses |
17,200 |
Raw materials |
2,40,000 |
Plant |
40,000 |
As on date, the cash received was Rs. 4,80,000 being 80%of work certified. The value of materials remaining at site was Rs. 20,000. Depreciate plant by 10%. Prepare contract account showing profit to be credited to P&L A/c.
[Ans: Notional Profit: Rs. 30,800; Profit transferred to P&L A/c: Rs. 16,426]
11. M/s Verma Building Contractors began to trade on 1 January 2009. The following was the expenditure on contract for Rs. 9,00,000.
|
Rs. |
Materials issued from stores |
2,25,000 |
Materials purchased |
60,000 |
Plant installed at cost |
1,05,000 |
Wages paid |
3,60,000 |
Direct expenses paid |
33,000 |
Establishment expenses |
30,000 |
Direct expenses accrued due |
4,500 |
on 31 December 2009 |
|
Wage accrued due on |
3,000 |
31 December 2009 |
|
Of the plant and materials charged to the contract, the plant which cost Rs. 7,500 and materials costing Rs. 6,000 were lost. Some parts of the materials costing Rs. 3,750 were sold at a profit of Rs. 750. On 31 December 2009 the plant which cost Rs. 3,000 was returned to stores and the plant which cost Rs. 2,250 was transferred to some other contract.
The work certified was Rs. 7,20,000 and 80%of the same was received in cash. The cost of work done but uncertified was Rs. 4,500. Charge depreciation on plant was at 10%p.a. You are required to prepare the contract account for the year that ended on 31 December 2009, by transferring to P&L A/c the portion of profit, if any, you consider reasonable.
[Ans: Notional Profit: Rs. 24,000; Profit transferred to P&L A/c: Rs. 12,800]
[Model: Work Uncertified—Calculation]
12. M/s Rajesh and Co. commenced work on a particular contract on 1 April 2009. They closed their books of accounts for the year on 31 December each year. The following information is available from their closing records on 31 December 2009:
|
Rs. |
Materials sent to site |
1,00,000 |
Foreman’s salary |
24,000 |
Wage paid |
2,00,000 |
A machine consisting Rs. 64,000 remained in use on site for 1/5th of the year. Its working life was estimated at 5 years and scrap value at Rs. 4,000. A supervisor is paid Rs. 4,000 p.m. and had devoted one-half of his time on the contract.
All other expenses were Rs. 30,000. The material on site was Rs. 18,000. The contract price was Rs. 8,00,000 on 31 December, 2/3rd of the contract was completed. However, the architect gave certificate only for Rs. 4,00,000 on which 75%was paid.
Prepare the contract account in the company’s books.
[Ans: Notional Profit: Rs. 1,33,700; Profit transferred to P&L A/c: Rs. 66,350; Cost of work uncertified Rs. 89,100]
13. Khush Construction Co.undertook a contact for constructing a bridge for a total value of Rs. 12 lakhs on 1 January 2009. It was estimated that the contract would be completed by 30 June 2010. You are required to prepare a contract account for the year ending 31 December 2010.
|
Rs. |
Wages |
3,00,000 |
Materials |
1,50,000 |
Materials at site on 31 December 2009 |
20,000 |
Special plant |
1,00,000 |
Overheads |
60,000 |
Work certified |
8,00,000 |
Depreciation is at 10%p.a. on plant. Cash received is 80%of the work certified. 8%of the value of materials issued and 7%of wages may be taken to have been incurred for the portion of the work completed but not yet certified. Overheads are charged as a percentage of direct wages.
[Ans: Notional profit Rs. 3,37,200
Profit transferred to P&L A/c Rs. 1,79,840
Work uncertified Rs. 37,200]
[Model: Escalation clause]
14. Shree Construction Co.undertook a contract on 1 January 2009 for construction of a farm house with an escalation clause which provides that if material prices and wage rates increase by more than 12%, then the contractor gets a compensation for 35%of such rise in the cost of material and wages beyond 12%. It was agreed that since the signing of the agreement the material prices and wages rates have gone up by 42%on an average. The value of work certified does not take into account the effect of escalation clause.
The following are the details relating to the contract for the year that ended on 31 December 2009.
|
Rs. |
Contract price |
15,00,000 |
Materials issued |
3,00,000 |
Wages |
4,00,000 |
Overheads |
25,000 |
Plant installed at site |
50,000 |
Material in hand as on 31 |
25,000 |
December 2009 |
|
Work certified |
10,00,000 |
Cash received |
8,00,000 |
Work done but uncertified |
25,000 |
Depreciate plant @ 10% p.a. |
|
Prepare a contract account and show the profit that is to be taken to P&L A/c.
[Ans: Notional profit: Rs. 3,69,910; Profit transferred to P&L A/c: Rs. 1,97,285. Compensation for escalation in prices to be credited to the contract account: On material-Rs. 20,335; On wages-Rs. 29,575]
15. Excel Ltd. undertook a contract for Rs. 10,00,000 on 1 February 2009. On 31 January 2010, when the accounts were closed, the following details about the contract gathered:
|
Rs. |
Materials purchased |
2,00,000 |
Wages paid |
90,000 |
General expenses |
20,000 |
Plant purchased |
1,00,000 |
Materials on hand on 31 January 2010 |
50,000 |
Wages accrued on 31 January 2010 |
10,000 |
Work certified |
4,00,000 |
Cash received |
3,00,000 |
Work uncertified |
30,000 |
Depreciation of plant |
10,000 |
The above contract contained an escalation clause which reads as follows:
“In the event of prices of materials and rates of wages increase by more than 5%of the contract price, then the prices 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 work certified does not take into account the effect of the above clause. Now prepare the contract account.
[Ans:Notional profit: Rs. 1,60,000; Profit transferred to P&L A/c: Rs. 40,000 Compensation for escalation in prices to be credited to the contract account:
On materials: Rs. 24,000
On wages: Rs. 16,000
Increase in contract price as per escalation clause = Rs. 10,000]
[Model: Preparation of contract account and balance sheet extract.]
16. Mr X and Mr Y undertook a contract for Rs. 5,00,000 for construction of a building. The following is the information concerning the contract during the year 2009:
|
Rs. |
Materials sent to site |
1,70,698 |
Labour engaged on site |
1,48,750 |
Plant installed at site at cost |
30,000 |
Direct expenditure |
6,334 |
Establishment charges |
8,252 |
Materials returned to store |
1,098 |
Work certified |
3,90,000 |
Value of plant as on 31 December 2009 |
22,000 |
Cost of work not yet certified |
9,000 |
Materials at site - 31 December 2009 |
3,766 |
Wage accrued on 31 December 2009 |
4,800 |
Direct expenditure accrued on 31 December 2009 |
480 |
Cash received from contractee |
3,60,000 |
Prepare contract account, contractee’s account and show the balance sheet as on 31 December 2009.
[Ans:Notional Profit: Rs. 56,550; Profit transferred to P&L A/c Rs. 34,798; WIP: Rs. 21,752.
Work certified and work uncertified are to be added and from the total Reserve (WIP) is to be deducted and the net amount is shown under the head “WIP” on the assets side of the balance sheet.
As the balance sheet is not in a complete form, both sides cannot be totalled. Hence, the total is not shown in the balance-sheet extracts]
[Model: Preparation of Contract Account and Balance Sheet from Trial Balance:]
17. The following Trial Balance was extracted from the books of a contractor as on 31 December 2009:
Dr Rs. |
Cr Rs. |
|
---|---|---|
Share capital |
– |
2,40,000 |
Creditors |
– |
24,000 |
Land and Building |
1,02,000 |
– |
Cash at bank |
27,000 |
– |
Materials |
2,40,000 |
– |
Plant |
45,000 |
– |
Wages |
3,15,000 |
- |
Expenses |
15,000 |
- |
Cash received being 80%of the |
- |
4,80,000 |
work certified |
|
|
|
7,44,000 |
7,44,000 |
Of the plant and materials charged to the contract plant costing Rs. 6,000, materials costing Rs. 6,000 were destroyed by an accident. On 31 December 2009, the plant which cost Rs. 12,000 was returned to stores. The value of materials on site was Rs. 12,000 and the cost of work done but not certified was Rs. 6,000. Charge depreciation was at 10%on plant and carry to P&L A/c 2/3rd of profit on cash basis, after preparing the contract account.
[Ans: Notional Profit: Rs. 50,100; Profit taken to P&L A/c: Rs. 26,721; Balance sheet total: Rs. 2,78,721]
18. AONE Construction Co. Ltd which commenced its business of construction on 1 January 2009 showed the following balances:
Dr Rs. |
Cr Rs. |
|
---|---|---|
Paid-up share capital |
- |
5,00,000 |
Cash received on account of |
- |
6,00,000 |
contract (80%of work certified) |
|
|
Land and Buildings |
1,50,000 |
– |
Machinery at cost (75%at site) |
2,00,000 |
– |
Bank |
20,000 |
– |
Materials at site |
2,00,000 |
– |
Direct labour |
2,75,000 |
– |
Expenses at site |
10,000 |
– |
Lorries and Vehicles |
1,50,000 |
– |
Furniture |
5,000 |
– |
Office equipment |
50,000 |
– |
Postage and Telegrams |
2,500 |
– |
Office expenses |
10,000 |
– |
Rates and Taxes |
15,000 |
– |
Fuel and Power |
12,500 |
– |
|
11,00,000 |
11,00,000 |
The contract price is Rs. 15,00,000 and the work certified is Rs. 7,50,000. The work completed since certification is estimated at Rs. 5,000 (at cost). Machinery costing Rs. 10,000 was returned to stores at the end of the year. Stock of materials at site on 31 December 2009 was of the value of Rs. 25,000. Wages outstanding were Rs. 1,000. Depreciation on machinery is 10%. You are required to calculate the profit from the contract and prepare the Balance Sheet as on 31 December 2009.
[Ans: Notional Profit: Rs. 2,79,000; Profit to P&L A/c: Rs. 1,48,800; WIP in balance sheet: Rs. 24,800; Balance sheet total: Rs. 6,04,800]
[Model: Two or more contracts]
19. Two contracts were commenced on the following months: 1 January and 1 July 2009. Their accounts as on 31 December 2009 showed the following:
Contract I Rs. |
Contract II Rs. |
|
---|---|---|
Contract Price |
16,00,000 |
10,80,000 |
Expenditure: |
|
|
Raw materials |
2,88,000 |
2,32,000 |
Wages paid |
4,40,000 |
4,49,600 |
General charges |
16,000 |
11,200 |
Plant installed |
80,000 |
64,000 |
Materials in hand |
16,000 |
16,000 |
Wages accrued |
16,000 |
16,000 |
Work certified |
8,00,000 |
6,40,000 |
Work finished but |
24,000 |
32,000 |
uncertified |
|
|
Cash received for |
6,00,000 |
4,80,000 |
work certified |
|
|
The plane was installed on the date of commencement of each contract, and depreciation is to be taken at 10%per annum.
Prepare the contract accounts and show how they would appear in the Balance Sheet as on 31 December 2009.
[Ans: Contract I: Notional Profit: Rs. 72,000; Profit taken to P&L A/c: Rs. 36,000; WIP in B/s total – Rs. 1,88,000.
Contract II: Notional Profit – Loss: Rs. 24,000; Loss taken to P&L A/c: Rs. 24,000 (in full); WIP in B/s total: Rs. 1,92,000]
20. Three contracts were commenced on the following months: 1 January, 1 July and 1 October 2009. They were undertaken by a contractor and their accounts as on 31 December 2009 showed the following:
The plant was installed on the date of commencement of each contract. Depreciation is to be taken at 10%p.a. You are required to prepare profit contract accounts.
[Ans: Contract I: Notional Profit: Rs. 9,000; Profit taken to P&L A/c: Rs. 4,500.
Contract II: Loss: Rs. 3,000
Contract III: Notional Profit: Rs. 1,500.
Profit cannot be taken to P&L because work certified is less than 1/4th]
[Model: Contract account for 2 or more years]
21. The following information relates to a construction company in respect of a contract for Rs. 20,00,000:
2008 Rs. |
2009 Rs. |
|
---|---|---|
Materials issued |
6,00,000 |
1,68,000 |
Direct wages |
4,60,000 |
2,10,000 |
Direct expenses |
44,000 |
20,000 |
Indirect expenses |
12,000 |
2,800 |
Work certified |
15,00,000 |
20,00,000 |
Work uncertified |
16,000 |
- |
Materials at site |
10,000 |
14,000 |
Plant issued |
28,000 |
4,000 |
Cash received from contractee |
12,00,000 |
20,00,000 |
The value of the plant at the end of 2008 and 2009 was Rs. 14,000 and Rs. 10,000, respectively.
Prepare (i) Contract account and (ii) Contractee’s account for the years 2008 and 2009 taking into consideration such Profit for transfer to P&L A/c as you think appropriate.
[Ans: For 2008: Notional Profit: Rs. 3,96,000; Profit taken to P&L A/c: Rs. 2,11,2000.
For 2009: Profit: Rs. 2,64,000 Fully taken to P&L A/c]
22. The following information relates to a contract for Rs. 15,00,000. (The contractee paying 90%of the value of work done and certified by the architect and rest on the completion of the contract).
The value of plant at the end of 2007, 2008 and 2009 was Rs. 16,000, Rs. 10,000 and Rs. 4,000, respectively. Prepare the contract account for the three years.
[Ans: 2007: Loss: Rs. 14,000; to be transferred to P&L A/c. 2008: Notional Profit: Rs. 3,15,000; Profit credited to P&L A/c: 1,89,000; Profit kept in reserve: 1,26,000.
2009: Profit: Rs. 1,65,000; Transferred to P&L A/c: Full]
[Model: Contract Price is not given]
23. The following information was related to a construction company:
The construction started on 1 January 2009: Expenditure incurred during the year 2009:
|
Rs |
Materials issued |
5,50,000 |
Wages |
2,00,000 |
Direct expenses |
1,00,000 |
Plant purchased on 1 January 2009 |
5,00,000 |
Materials in hand |
25,000 |
Depreciate the plant @ 10%p.a. Other works expenses to be charged @ 20%of wages and office expenses @ 10%of work cost.
The amount certified by the engineer up to 31 December 2009 was Rs. 15,00,000, retention money being 20%of certified value. Prepare a contract account showing there in the amount of profit or loss to be transferred to P&L A/c.
[Ans: Notional Profit: Rs. 4,93,500; Profit to be taken to P&L A/c: 2,63,200]
[Model: Profit to be kept in Reserve as per instruction]
24. The following information is available in respect of a contract in 2009, the contract price being Rs. 9,00,000.
|
Rs. |
Materials issued |
76,500 |
Plant installed at site |
22,500 |
Wages paid |
1,21,500 |
Other expenses |
7,500 |
Cash received on contract on 31 December 2009 amounted to Rs. 3,84,000, being 80%of work certified. Of the plant and materials charged to the contract, the plant which cost Rs. 9,000 and materials costing Rs. 7,500 were lost. On 31 December 2009, the plant costing Rs. 6,000 was returned to stores. The cost of work done but uncertified was Rs. 3,000 and materials costing Rs. 6,900 were in hand. Charge 15%depreciation on the plant. Reserve 1/3rd profit earned and prepare the contract account from the above particulars.
[Ans: Notional Profit: Rs. 2,89,875; Profit to be kept in reserve: Rs. 96,625; Profit to be transferred to P&L A/c Rs. 1,93,250]
[Model: Contract Related to Extra Work]
25. M/s Lal and Tandon undertook a contract for construction of a building at a contract price of Rs. 5,00,000. Their account books show the following regarding the contract for the year that ended on 31 December 2009.
|
Rs. |
Materials issued from stores |
1,00,000 |
Wages paid |
40,000 |
Wages to be paid |
5,000 |
Plant issued on 1 July 2009 (for 6 months) |
2,00,000 |
Indirect expenses 10,000 |
10,000 |
Sub-contract cost |
25,000 |
Materials at site at the end |
10,000 |
Cash received being 90% of the work certified |
2,70,000 |
Work done but not yet certified |
15,000 |
Plant costing Rs. 25,000 was sold on 31 October 2009 for sum of Rs. 20,000. This plant is to be valued after charging a depreciation at 12% p.a. Extra work was done and completed on this contract (not included in terms of contract). A sum of Rs. 30,000 was agreed to be paid for it separately and the cost of this work to the contractor was Rs. 22.500 only. Prepare the contract account and show the amount of profit to be credited to P&L A/c on cash-received basis.
[Ans: Notional Profit: Rs. 1,33,500; Profit transferred to P&L A/c: Rs. 80,100; Profit on extra work done: Rs. 7,500]
[Model: Value of Tender]
26. From the following information, prepare a contract account and find out the value of tender:
|
Rs. |
Materials issued |
76,500 |
Materials used |
1,80,000 |
Productive wages |
1,35,000 |
Direct expenses |
15,000 |
Provide 60%on wages for works overheads and 12½%on works cost for office on cost. Profit should be 15%of the tender price.
[Ans: Rs. 5,43,970 – 60]
[Model: Contract Meaning Completion]
27. The following information relates to a contract which is 95%completed and in respect of which the contractor having estimated a further expenditure that will be incurred in completing the contract, has decided to carry to the credit of P&L A/c that proportion of the estimated net profit that is to be realized on contract which the cash received bears. to the contract price.
Rs. | |
---|---|
Total expenditure incurred during 2008 |
54,000 |
Expenses during 2009: |
|
Labour |
74,000 |
Materials |
46,000 |
Indirect expenses |
20,000 |
Contract price |
2,80,000 |
Value of work certified up to 31 December 2009 |
2,20,000 |
Cost of work not certified up to 31 December 2009 |
6,000 |
Cash received till 31 December 2009 |
2,00,000 |
Estimated additional expenses |
40,000 |
The total estimated additional expenditure on the contract is to include a provision of 1/2%for contingences. You are requested to prepare the contract account and show the calculations for the amount of profit that you would credit to the P&L A/c for the year that ended on 31 December 2009.
[Ans: Notional Profit up to 2009: Rs. 32,000; Estimated profit on full contract: Rs. 40,000; Profit credited to P&L A/c in 2009: Rs. 28,572]
28. A contractor undertook a contract for Rs. 50,000 on 1 January 2009 to be completed over a period of two years. His accounting year ends on 31 December 2009. State with reasons at what value the WIP on 1 January 2010 will appear in the contract account in each of the following cases:
[B.Com (Hons) – Delhi]
29. The following Trial Balance was extracted on 30 April 2010 from the books of a contractor:
Dr Rs. |
Cr Rs. |
|
---|---|---|
Share capital |
– |
1,40,720 |
P&L A/c (Last year) |
– |
10,000 |
Provision for depreciation on |
– |
25,200 |
plant |
|
|
Cash received on contract |
– |
5,12,000 |
Creditors |
– |
32,480 |
Land and Buildings at cost |
29,600 |
– |
Plant at cost |
20,800 |
0 |
Cash at bank |
18,000 |
0 |
Expenditure on contract: |
|
|
Materials issued |
2,40,000 |
– |
Direct labour |
3,32,000 |
– |
Expenses |
16,000 |
– |
Plant at cost |
64,000 |
– |
|
7,20,400 |
7,20,400 |
The contract was begun on 1 May 2009. The contract price is Rs. 9,60,000 and the customer has so far paid Rs. 5,12,000, being 80%of the work certified. The cost of work done since certification is estimated at Rs. 6,400 on 30 April 2010. After the above trial balance was extracted, the plant costing Rs. 12,800 was returned to stores and materials then on site were valued at Rs. 10,800. Provision is to be made for labour accrued Rs. 2,400 and depreciation on plant is at 1/2%. You are required to (a) write up contract account and (b) prepare a balance sheet as on that date.
[Ans: Notional profit: Rs. 58,800; Profit taken to P&L A/c: Rs. 31,360]
30. X Ltd. closes its accounts on 31 December each year. The company commenced work on a contract on 1 January 2009. The following information relates to the contract as on 31 December 2009:
|
Rs. |
Materials issued |
2,51,000 |
Wages |
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 per month had devoted half of his time to the contract. Other expenses and administration charges amounted to Rs. 1,36,500. Materials at site at the end of the year cost Rs. 35,400. The contract price is Rs. 20,00,000. On 31 December 2009, two-thirds of the contract was completed. The architect had issued certificate of approval covering 50%of the contract price and the contractor had been credited Rs. 7,50,000 on his account.
Prepare the contract account and WIP account. Also show how the WIP will appear in the balance sheet of the contractor as on 31 December 2009.
[C.S. Inter – Modified]
[Ans: Notional Profit: Rs. 2,04,250; Profit taken to P&L A/c Rs. 1,02,126]
31. Excellent Erectors Ltd. took up a contract for construction of a building at a contract price of Rs. 15 lakhs. During the first year, the following amounts were spent as against a sum of Rs. 5,62,500, which represented 90%of the work certified and received by the contractor.
|
Rs. |
Materials |
2,62,500 |
Wages paid to workers |
1,50,000 |
Overhead expenses |
37,500 |
During the second year, the firm spent the following amounts:
|
Rs. |
Materials |
3,75,000 |
Labour cost |
3,00,000 |
Overhead expenses |
75,000 |
In the second year, the contract was completed and the sum of Rs. 8,75,00 was received by the contractor. Prepare the contract and contractee’s accounts for both the years and calculate the profit.
(Note: Consider 2/5th of the notional profit of the credit of P&L A/c in the first year.)
[I.C.W.A. (Inter)]
[Ans: First year: Notional Profit: Rs. 1,75,000;
Transferred to P&L A/c: Rs. 70,000
Second year: Profit Rs. 2,30,000]
32. A contractor commenced a building contract on 1 October 2008. The contract price is Rs. 8,80,000. The following data pertaining to the contract for the year 2008–2009 have been compiled from his books and is as under
|
|
Rs. |
1 April 2009 |
WIP not certified |
1,10,000 |
|
Materials at site |
4,000 |
2009–2010 |
Expenses incurred: |
|
|
Materials issued |
2,24,000 |
|
Wages paid |
2,16,000 |
|
Hire of plant |
40,000 |
|
Other expenses |
68,000 |
31 March 2010: |
Materials at site |
8,000 |
|
WIP (not certified) |
16,000 |
|
Certified |
8,10,000 |
The cash received represents 80%of the work certified. It has been estimated that further costs to complete the contract will be Rs. 46,000 including the materials at site on 31 March 2010.
Required:
Determine the profit on the contract for the year 2009–2010 on a prudent basis, which has to be credited to P&L A/c.
[C. A. Inter – Modified]
[Ans: Profit taken to P&L A/c: Rs. 1,33,546]
33. New Century Builders have entered into a contract to build an office building complex for 480 lakhs. The work started in April 2008 and is estimated that the contract will take 15 months to be completed. Work has progressed as per schedule and the actual costs charged till March 2010 are as follows:
|
Rs.(in lakhs) |
Materials |
112–20 |
Labour |
162–00 |
Hire charges for equipments and other charges |
36–00 |
Establishment charges |
32–40 |
|
342–60 |
The following information is available:
Materials in hand (31 March 2010) |
6–60 |
Work certified (of which Rs. 324 lakhs have been paid) as on 31 March 2010 |
400– |
Work not yet certified as on 31 March 2010 |
7–50 |
As per management estimates, the following further expenditure will be incurred to complete the work:
|
(Rs. in lakhs) |
Materials |
10 – 50 |
Labour |
16–00 |
Sub-contractors |
20–00 |
Equipments hire and other charges |
3–00 |
Establishment charges |
6–90 |
You are required to prepare the contract account after considering a reasonable margin of profit. Make a provision for contingencies amounting to 5%of total costs.
[I.C.W.A. Inter – Modified]
[Ans: Profit to be taken to P&L A/c: Rs. 50 lakhs; Estimated profit on contract: Rs. 60 lakhs]
34. Lon & Ton Ltd is a turnkey contractor who has entered into a contract with a customer for the construction of a bridge. The following details are available from its contract:
Materials | Quantity Ton. | Rate Rs. |
---|---|---|
Cement |
100 |
2,000 |
Steel |
10 |
15,000 |
Bricks |
No. 10,000 |
Rs. 1 each |
Gravel |
10 |
500 |
Labour |
Hours |
Hourly rate |
Skilled |
100 |
5 |
Semi-skilled |
50 |
2 |
Unskilled |
100 |
1 |
The following data are available from their records once the construction work is compete: Materials (Actuals)
Quantity Ton. | Rate Rs. | |
---|---|---|
Cement |
100 |
2,100 |
Steel |
10 |
16,000 |
Bricks |
No. 11,000 |
Rs. 1.50 each |
Gravel |
12 |
800 |
Labour |
Hours |
Hourly rate |
Skilled |
105 |
4 |
Semi-skilled |
50 |
3 |
Unskilled |
105 |
2 |
The escalation clause in the contract provides for escalation in contract price based on the rise in the prices of material and increase in the wage rates. Calculate the escalation amount and final claim.
[Ans: Total escalation amount: Rs. 28,050; Final claim: Rs. 3,93,750]
35. LMN contractors obtained a contract to build houses, the contract being Rs. 2,00,000. Work commenced on 1 January 2009 and the expenditure incurred during the year was:
Plant and tools: Rs. 10,000; Stores and materials: Rs. 36,000; Wages: Rs. 32,500; Sundry expenses: Rs. 2,650; and Establishment charges: Rs. 5,850.
Certain materials costing Rs. 6,000 were unsuited to the contract and were sold for Rs. 7,250. A portion of the plant was scrapped and sold for Rs. 1,150.
The value of the plant and tools on the sites on 31 December 2009 was Rs. 3,100 and the value of stores and materials on hand was Rs. 1,700. Cash received on account was Rs. 70,000 representing 80%of the work certified. The cost of the work done but not certified was Rs. 10,950 and this was certified for Rs. 12,500.
LMN contractors decided (i) to estimate what further expenditure would be incurred, (ii) to compute from this estimate and expenditure already incurred, the total profit that would be made on the contract and (iii) to take to the credit of P&L A/c for the year 2009 that proportion of the total which corresponds to the work certified on 31 December. The estimate was as follows:
Prepare the contract account for the year that ended on 31 December 2009 and show your calculation of the amount credited to P&L A/c for the year
[I.C.W.A. (inter) & C.S. (Modified)]
[Ans: (i) Notional Profit: Rs. 23,400; (ii) Transfer to P&L A/c: Rs. 12,033; (iii) Estimated Total Profit on Contract: Rs. 27,505]
18.191.162.21