Project Accounting

Dr. Sarbesh Mishra
NICMAR, HYD

6/27/2009

Dr Sarbesh Mishra

1

Contract
This refer to the work done by third party who agreed to pay fixed sum of money for the completion of a specific work. Stages of Contract – A contract can be divided into few stages, namely foundation level, plinth level, roof level, roofing, plastering of roofs and walls, laying of floors, etc. are different stages. Thus cost at each stage should be ascertained.
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Equipments
n (i)

(ii)

Two possibilities are there, namely: Equipment may be bought – Value of the equipment shall be debited to contract account and on completion, it may be credited with the value of the equipment. Equipment is available / on Lease – The depreciation / rent should be charged to contract account.
Dr Sarbesh Mishra 3

6/27/2009

Indirect Expenditure
n

When more than one contracts are in hand, officers and contractors would be paying attention to all the contracts. n Indirect expenses would have to be apportioned equitably in proportion to the usage. If two contracts cost are 50,000 : 30,000, in materials, labour and plant, then indirect expenses may be apportioned in the above ratio of 5:3.
Dr Sarbesh Mishra 4

6/27/2009

Extra Work Done
The client desires to get some additions and alterations, which is not a part of the original work, then the extra work must be charged to the contract price as per actuals inclusive of material, labour and indirect expenses. n Separate account should be maintained if the extra work is considerable.
n
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Sub-contract
A definite portion of the contract may be entrusted to another contractor. n In this case, the price paid should be included in the cost of the main contract as separate item.
n

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Dr Sarbesh Mishra

6

Work in Progress
Certified Work in Progress – Contractor receives certain percentage (say 80% or 90%) of the value of each definite stage of work completed. n After the issue of certificate from the surveyor and architects, percentage payment will be made and the rest “retention money” will be paid once the whole contract is executed.
n
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Uncertified Work-in-progress
n

No certificate from the architect results in no payment for the work by the contractee. WIP uncertified should be valued at costmaterials used and wages spent. The amount is to be debited to WIP account and credited to contract account.
Dr Sarbesh Mishra 8

n

n

6/27/2009

Profit on Incomplete Contract
n

Entire profit cannot be transferred to Profit and loss account as the project is not completed till the year end because of possible rise in prices of materials, wages, etc. If the contract has not advanced to a sufficiently high stage, say ¼ of the total contract, the entire profit should be left as reserve and nothing should be transferred to P/L A/C.
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n

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Example
Contract Price – 6,00,000/Cost of Completing the project – 5,20,000/Estimated Profit – 80,000/Value of work done – 2,50,000/Amount of profit to be transferred to P/L A/C is 80000 * 2,50,000 = 33,333/6,00,000
6/27/2009 Dr Sarbesh Mishra 10

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