Buitding z Plant in stores esata 05g materials $ Materia i store 180,000 Ms 30.00 esate emp» _ 2,000" pe eae f cid 4.30,000 an nceried or my Less: Reserve Less: $2500 Miateriaen reat’ 3,00, 142,500, Planta sit | 45.000 |__ss1o00 [36500 __{ 82600 i L Ale has been Cash received 4. Toe unabrorbed expenses shown In the balance sheet i 77,000 ~ 45,000 = 22.000. 3, Depreciation on plant of €2,00,000 has been charged to conrct only for 9 months For conning 3 suns 1 bas Vouk shard. te ents is ee tele shee pbk 8.8 A contractor, who prepares his accounts on 31 December each year, commenced ;oatract On 1 April 2011. The costing records concerning the said contract reveal the ‘vag information on 31 December 2011: Materials charged to site %2,58,100 Labour engaged 5,60,500 Foremen’s salary 279,300 Plants costing %2,60,000 had been on site for 146 days. Their working life is estimated ‘Tyeats and their final scrap value at 15,000. A supervisor, who is paid 4,000 p.m., has ‘oved approximately three-fourth of his time to this contract, The administrative and other pases amount to &1,40,000. Materials in hand at site on 31 December 2011 cost £25,400, Sie of the material costing 4,500 was found unsuitable and was sold for %4,000 and part ‘4 lant costing @5,500"(on 31.12.2011) ‘unsuited to the contract was sold at a profit of 00 The contract price was €22,00,000 but it was accepted by the contyseist for 0,000. On 31 December 2011, jwo-third of the contract, was completed. Architect’s: ‘tfcate had been issued covering 50% of the contract pie and €7,50,000 has so far been don account. Prepare Contract Account and state how mv! profit or loss should be included "he fnancial accounts to 31 December 2011. Workings should be clearly given. Depreciation “charged on time basis. mSca| a 4 8.20.0 Contract Costing sis® Prepare the Contractee’s Aecount and show how these accounts wouyy 'ee Sheet as on 31 December 2011. Pes, 4 i) the Balan Solution Contract Account ‘for the year ending 31 December 2011 To Materials 2,58,100 || By pein ae To Labour 5,60,500 || By Mat 79,300 || By Loss on sale of materials T A lat A oe 27,000 By Work in porgress: To Supervisor's salary To Plant depreciation Uncertified 146, [ene00-15.0m Z | 14,000 To Admn. and other exp. 140,000 ‘To Balance c/d (Notional Profit} 2,13,250 12,92,15 To Profit and Loss A/c 1,06,625 |} By Balance b/d 2 |, 7,50,000 (amas 2 stat) To Balance (Reserve) 1,06,625, 2,13,250 f *Caleulation of cost of work uncertified: \ Contract completed = Work certified = 50% oF 172 » Work uncertifed = 23-12 = 16 Total cost incurred = 2,58,100 + 5,60,500 + 79,300.+ 27,000 + 14000 + 1,40,000 - (25,400 + 4,000 + S00) = 210,49,000 Cost of 2/3 of the contract = 10,49,000 “+ Cost of the complete contract = 10,49,000 x 215,73,500 = 8, 62,250 Cost of work uncertified = 15,73,500 x Contractee's Account To Balance old 31-12-2011 i fo Balance By Cash | 7,50,000_ h : Scanned wurrtmscaContract Costing 08. Balance Sheet as on 31 December 2011 mm | |_Assett ie NE GU OSNE 96005 Nate ste 25,400 vc a Pat sie 2,40,500 ofan sale LE i isi ane Mere Oot alt lorkeerified _10,00,000 aso 7 Work uncertified 250 yO esol 2) dan.ies 12,62,250 of — Less: Reserve 1,06,625 115,625 Less: Cash +7,50,000 | 4,058,625 prabhu Builders Ltd commenced work on 1 April 2011 ona contact, of which 39 ie 25 lakh, The followin 1! ice Was he following expenditure was incurred during the year UP '° yey 102: ‘ z wos 1,40,000 phat 35,000 teil 1,05,000 yen me exPenEE 12,500 ris coin 10.00 proved wail and we sold for 211,500 and a part of the ons imrapped and sold for 1,700 e ee cont rc, 240,00 repeseting of work certified had been received BY ————_. the value of the plant on the jo 1) and the valve ase was €3.00. The cos of work done but not certified was %25,000- ys eid 1: (0 estimate wht father expends ‘would be incurred in completing he expenditure already incurred, the tla! vast) compute from the estimate end come gould be mde on the contact ad () aera ts mount of profit to be taken sa eof Prost and Lass Account fr Jot ning 31 March 2012, White toking the credit of Prof and Loss Aen ihe portion ofthe wll prot should be 168 ree the value of work ssid eas othe cones ne Details of the estimates were 2S flows ~~ (9 That the cont 1 2012 {i) The wages 10 (a That materials j fay That furter £1,000 woukd hae 0 Be Pe 07 Flam on 31 September 2012 wou be €.009 (0) The head-office expenses 1 the contact ‘would be aoui-12 to) That lai, temporary snennce ad coanEen SY ould require 89,000 se aceount for the yar ended 31 March 201° Wf Loss Account forthe yS3F tails of th act would be completed by 30 Septembet complete would amount to €84,750 vs adition to those in stock on 31 March 2012 would cost 50,000 ant and the residual value of the at the same annual rate as in Prepate contra and show your caleulations of (CS Inter) the sum to be ereited to Profit an aa dcarneu with CamSca8.22.0 Contract Costing Solution Contract Account for the year ending 31 December 2012 —_ To Mi . . aterials 1,05,000 |} By Work-in-progress, To Wages rio}000 || Certified (2,40.000 + 80%) | 300.49 To Plant 35,000 || _ Uncertified 25.000 To Head office expenses 12,500 |] By Plant at site 8,000 To P&L Ale (Profit on materials} 1,500 |} By Plant sold 1700 To Notional profit c/d 55,200 || By Materials at site 3.000 By Materials sold se eee nC 3,49,200 349,209, j= pe To P&L Alc 36,120 || By Notioanl profit b/d 55.200 To Balance (Reserve) 19,080 La 55,200 135.200 “Calculation of profit transferred to P&L Account: ‘Transfer of profit to Profit and Loss Account is on the basis of extimated profit as shown below: ‘Total expenditure (up to 31.3.2012) z Materials (1,05,000 ~ 10,000 - 3,000) 92,000. ‘Wages 1,40,000 Head office expenses 12,500 25,300 Plant (35,000 ~ 8,000 ~ 1,700) Total —_2,69,800 ‘Add: Further expenditure estimate to completion: Materials (50,000 + 3,000) 53,000 Wages 84,750 Plant (8,000 + 15,000 - 6,000) 17,000 Head office expenses (12,500 + 2) 6,250 Contingencies 9,000 Total estimated cost 4,39,800 Contract price _5,00,000 Total estimated profit (5,00,000 ~ 4,39,800) = 60,200 Work in progress cetitied t - Soknporsee Profit transferred to P&L Ale « Estimated profit * —— Contract price = 60,200 ae = G20 Problem 8.10 Surya Construction Ltd, with a paid-up share capi a contract to construct MIG apartments. The work ced on the contract 0" 2011, The contract price was %60 lakh. Cash receit ‘account of the contract UP Lae March 2012 was %18 lakh (being 90% of the work ied). Work completed b™ ie certified was estimated at %1,00,000. As on 31 March 2012, material at site was ests anIneg WIL cAmseag, machinery at site cost Oyo. Plan and machinery 8 °2,00.000 wag Contract Costing © 8.23 AU ie 8 to stone wget following Were Me Ledger batancag (yy, °e UPEclated at sage ME OMANI » 8 Per trial \ sun 9g Wal balance, as on 31 March 2012: v z \ " a 23,00,000 ae 25,00,000 | ee 60,000 yeh and — 14,00,000 fie exnense 1.25.00 office expenses 5,000 ppates and taxes 12,000 cst at Bank 15,000 swoees 1,33,000 ) prepare the Contract Account and Balance Sheet, a ex ‘iy, J sotation n he at Aet Account Sor the year ending 31 March 2012 4 » pee ||. Particulars z a | Sp vate 14,00,000 || By Plant returned 2,00,000 wy | Wages = 2,50,000 Less: Depreciation 10,000] 1,90,000 =] pe aees oustncing 5,000 |] By Plant at si 13,00, 000} qf Te Plant and machinery 15,00,000 Less: Depreciation _ 65,000} 12.35,000 A | je fuel and power 1,25,000 || By Materials at site| 30,000 ‘p Office expenses 12,000 |) By Work-in-progress: | BeSite expenses 5,000 Certified 20,00,000, qo Rates and taxes 15,000 Uncertified 1,00,000 4 | tp Notional profit e/d 2,483,000 1 larasont 3 (000 Z To Profit & loss A/c 72,900 || By Notional profit b/d 2,43,000 w 2,43,000 x ; x 90% t@ | ToReserve (Balance) 1,70,100 243,000 243,000 Note: Fuel and power, office expenses and rates and taxes are assumed to be specifically incurred on this contract. 4 : Balance Sheet as on 31-3-2012 Liabitities asses £ Land and building 23,00,000 Pant and machinery 11,90,000 {&10,00,000 + 1,90,000) (Contd.) —Sscanmnrerwintrcamnsca8.24 0 Contract Costing Plant at site Cash at Bank Materials at site Furniture Work-in-progress: Certified Uncertified Less: Cash Less: Reserve Problem 8.11 The following figures are extracted fro ym the books of a contrs . ha year ending 31 December 2011: ‘ ' Work-in-progress on 31 December 2010 17,00,000 Less: Advances from contractees 11,00,000 6,00009 Materials supplied to contract direct 1.20.00) Materials issued from store 2.10009 ‘Wages 1,10,009 ‘Working expenses 30,009 Materials returned to store 110) Contracts finished 4,500 Work certified 3,00,000 Profit taken to profit and loss account upon contract completed 230000 ‘Administrative expenses (out of which %5,000 is chargeable to profit and loss account) 25,000 Plant issued 0,000 Materials retumed from contract to suppliers 9000 Advances from contractees 8,00,000 Plant at site 40000 Prepare the Contract Ledger Control Account as in General Ledger and Total Contacts ‘Account, Show also how the work-in-progress would appear in the balance sheet as ca December 2011 Solution Contract Account Ledger Control Account (fn general ledger) ce To Work-in-progress bid 17,00,000, To Materials issued 2,10,000, To Wages 1,70,000, ‘To Working expenses 30,000oe hips Ss fe efeee SES e 5S aes Za oreo supplied direct giisTai¥e expenses piant profit pr contract Ledger Control ale Cas tihed) piace Liabilities eee BY Contractees By Balance big 'y Bank ‘tk Uncertified (Bal. Fig| Contract Costing © 8.28 450,000 40,000 3,00,000 7.20.00 | 25,30,000 z 11,00,000 8,00,000, 20,20,000 | 14,50,000 | $,70,000 (@ in lakh) Contract numbers 73 76 | 729 | 71 Contract price 23.20 | 1440 | 1008 | 2880 Estimated costs on completion of contract 20.50 1152 | 12.60 | 21.60 Expenses for the year ended 31.3.2010: Direct materials 5.22 1.80 198 0.80 Direct wages 232 432 | 3.90 216 Overheads (excluding depreciation) 1.06 2.60 2.62 1.05 Profit reserve as on 1.4.2009 1.30 ~ _ - Plant issued at cost 5.00 3.50 2.18 3.00 Materials at site on 1.4.2009 0.75 - bal = Materials at site on 31.3.2010 045 ee Work certified till 31,3.2009 4.65 Work certified during the year 2009-10 76 | 1326 pa Work uncertified as on 31.3,2010 A hee ~ Progress payments received during the year 9.00 3.60 mSca8260 Contract Costing Depreciation Was cetticd "@ 20% per annum is to be charged on plant issued. While the ¢ i ver from last ye; ts were started in the potty Aprit 2009, Regan last year, the remaining contracts were started in the 1. ven ( Determine the profivioss in respect of each contract for the year endeg 3) 2010 Marg, Gi State the profivtoss to be carried to Profit & Loss Account for the Year en 31 Mareh 2010 (4 tis Solution Contract Accounts {for the year ending 31-3-2010 (Figures in thy aed Contract no. 723 | 726 | 729 | 731 723| 726| rae -—| To WIP By WIP: o certified 4.65 certified 17.41 ]13.26 | 756 |, Material at site | 0.75 Uncertified | 0.84] 0.24) 044 on fe 5.40 By Material at) 0.45] 0.20) 008 | go, Less: Reserve 1,50 site so 3.90 To D, materials | 5.22] 1.80 1.98 }0.80 J To D. wages 2.32] 4.32 | 3.90 |2.16 |Loss: Tr. to =] =] 127 | 005 To Overheads 1.06] 2.60 | 2.62 1.05 P&L Ale A To Depreciation 1.00] 0.70 | 0.55 }0.60 io To Notional profit] 5.20} 4.28} — : 18.70 | 13.70 | 9.05 [4.61 18.70 [13.70 | 9.05 [asi | *To P&L Ale | 2.60) 1.80 By Notional | 5.20] 4.28] —|— | To Reserve 2.60| 2.48 profit 3.20| 4.28 5.20 | 4.28 ‘Notes : Contract no. 723—This contract is 75% certified. Tr. to P & L Ak Notional fi 2 ee receive . . le = x= coe otional profit 3 * Work certified E S20 x 2x25 oo 5" a ommeeeel Contract No. 726—This contract is 92% (i.e., 13.26 + 14.40) complete. Work certified received Contract price Work certified Tr. to P & L Alc = Estimated profit x 13.26 | 9.00 1440 "13.26 ~ *-8 Problem 8.13 Flex Limited commenced a contract o1 was %5,00,000 but Flex Limited accepted the same for the total profit and to take to the credit of Profit estimated profit on cash basis which the work ‘compl expenditure till 31.12,2009 and estimated expenditure = (14.40 ~ 11.52) x -7-2009, The total contract pre 000. It was decided to esto ‘Account that proportion © to the total contract. Act are given below: leu wit VarnScases esr’ Actuals Tru 31.12.2009 < rials Mar 75,000 antpureased (original cost) 55,000 plant Ph penscs 40,000 ane s He edt MOSS 09 31.1220 origina 20.000 : original cost 10,000 soterials at site Work certified 5,000 Work uncertified 2,00,000 Cash received 7500 a 1,80,000 Jant is subject to annual depreciation @ 20% Fae ie gt bresaton @ 20% of origina cost. The be come Contract Costing 08.27 Estimate For 2010 e 130,000 60,000 35,500 25,000 as on 30.9.2010 Nil Full Nil Full contract is likely required to prepare the contra 2009. Workings ‘you are requir act account for the year ended 31-12-20 kings pe clearly given. It is the policy of the company to cha ‘ge depreciation on time basis. ot be le? icy of the company to charge depreciation on time basi (CA Inter) ution sole Contract Account (for the year ending 31-12-2009) ie z= Jo Materials 75,000 || By Plant returned to qo Labour 35,000 Stores 9,000* Jo Plant 40,000 || By Plant at site 27,000* fo Misc. expenses 20,000, By Material at site 5,000 qoBalance cfd 58,500 || By WIP: Work certified 2,00,000 Work uncertified 7,500 2,48,500 2,48,500 TP&L Ale 26,400* || By Balance b/d 58,500 To Reserve 32,100 58,500 58,500 ‘Working Notes: 1. Estimated profit has been ascertained by preparing Memorandum Contract Account as follows: Memorandum Contract Account (1-7-2009 to 30-9-2010) _— € t To Material 2,05,000 |} By Plant returned to stores To Labour 115,000 *(18,750 + 9,000) 27,750 To Plant 40,000 || By Plant at site 3,750" To Misc. expenses 55,500 || By Contractee's A/c 4,50,000 To Estimated profit 66,000 4,81,500 4,81,500 ocalineu Wit] ValnocaaN to P&L Ale for the year ending on 31 1, sk contified : 8.28 Contract Costing 2. Profit to be transferred i Cash received ,, Work My Estimated profit * Work certified | Contract price 1,80,000 %2.00.000 _ 496.499 %2,00,000 * €4,50,000 at returned to stores om 31-12-2009 = %66,000 * 3. @ Caleutation of pla Original cost : ess: Depreciation @ 20% for 6 months a 0 om (ii) Plant at site on 31-12-2009 vigil cot of plant ~ Plant retuned ~ Depreciation) 40,000 ~ £10,000 ~ £3,000 = 27,000 (Gin) Plant returned to stores on 30-9-2010 Original cost F Less: Depreciation for 15 months ‘t 18,759 (iv) Plant at site on 30-9-2010) Original cost ae “Less: Depreciation for 15 months i. ele 3 EE Problem 8.14 A contractor undertook 2 contract for %5,00,000 on 1.7.20 ‘on of a library building. On 30-6-2012, when the accounts were cya | fetails about the contract were gathered: following 4 r Materials purchased 1000) Wages paid 45,000 General expenses 00 Plant purchased opm Materials in hand on 30-6-2012 25000 ‘Wages accrued 30-6-2012 soc Work certified 2,000 Work uncertified 15,000 Cash received iso Plant depreciation c ‘In eee! ‘The above contract contains an escalation clause which reads as follows. prices of materials and rates of wages increase by more than 5%, the contract prt wal increased accordingly by 25% of the rise in the cost of materials and wages beyond each case.’ It was found that since the date of signing the agreement, the prices cof mates wage rates increased by 25%. The value of work certified does not take into acco? effect of the above clause, Prepare the Contract Account, Working should form part of the answer. ¥ (CWA Inter: a dcanneu wartAnscaot ' ott tation Of Escalation Contract Costing © 8.29 Materials consumed * 190.600 25.099 sein ial cos 875,000 incre Mt =15,009 5 28 13 wares ~ 45.000. 5.099 ee ba = 50,000 tnctease in wages ndoasre 3 1s = 210,000 Total increase ~ sine the imerease in materials and wage a 225,000 n is 25% of the increase in the 28° 18 more than the yon 3% I the cost of mater a) 5% he escalation wil apply 25% inerea ‘wages beyond 5% Less: 5% increase , 5,000 sscalation = 20,000 x 25% = ¥5,099 Msemebeyond 4 "30.008 is comtract escalation of €5,000 wl be g This co willbe credited to contract account Contract Account forthe year ending 30 ure 2019 —_———— F ? JoMaterial 1,00,000 |) By wip. JaWages paid 45,000 Certified 2,00,000 1 Guraccrued 5,000| 50,000 |] Uncenitiea 13,000 Iy | tp General expenses 9,000 || By Materials in hand | 25,000 yj | To Depreciation 6,000 | By Contract escalation | 5,000 TeBalance c/d Si) © (Notional profit) 80,000 ay 2,45,000 2. OUD sopaLne 20,000 || By Balance bid % . 1 | 150,000 nm x — x ip (O° * 3 * 2,00,000. {gyi} To Balance c/d (Reserve) 60,000 an 80,000 80,000 ‘Note: As the contract is only 40% certified, only 1/3 of the profit in cash ratio has been sinc transferred to P&L Account. Problem 8.15 The following relates to a contract for 4,00,000. Work commenced on | Januray 2012 with the following expenditure ome Stores and materials $72,000, wages %65,000. Plant at tool Sat oat Sete aes ee 5,300 and Establishment charges %11,700. The value o! ion al (le ate sa 1 December 2012 was %6,200, The value of stores and atrial was 2.10 ad he = tified work was 721,900, It was later certified for 825,000. 81,404 Boece costing %12,000 were unsuited to the cotact and were sold for 1500. portion of the plant was scrapped and sold for €23 canned wrcamScaTTaR | The contra : i ctor wished to take profit on this contract on estimation basis ang estimates were made 7 ty pleted by 30 September 2013, hy 71,500. $300 Contract Costing 1. That the contract would be 2. That further wages required would be © 3. That further stores and materials required in addition (0 those jn 31 December 2012 would be £68,600 and that of sundry expenses woujy y tk , 4. That frther plant and tools required would be €25,000 which would pay My 1¢ of 83,000 on completion of contract. "igh ablishment expenses would cost the same per month as in 2019 e contract would be charged as a pray, Sing 6. That 24% of total cost of thy contingencies. Prepare Contract Account and the Statement of Estimation of Profit on Conta (Sing, Solution Contract Account ‘for the year ending 31 December 2012 = «, To Stores and materials 72,000 By Sale of materials To Wages 65,000 (Cost 712,000) To Plant and tools 20,000 By Sale of plant To Sundry expenses 5300 || By Plant on hand at the end 11,700 || By Stores and materials on band To Extablishment charge To Profit & Loss A/e: Profit 2,500 |] By Work certified By Work uncertified on sale of materials Total 1,76,500 To Notional Profit o/d 46,800 2,23,300 To P&L Alc 19,178 || By Notional Profit b/d To Balance (Reserve) 27,622 46,800 Profit Estimation for Complete Contract: u L6H Total Expenditure on contract Less: Plant and store on hand and sold (14,500 + 2,300 + 6,200 + 3,400) _ 26, Cost incurred till 31 December 2012 Ton8 ‘Add; Estimated further expenses: Wages 71,500 Stores and materials (3,400 + 68,600) 72,000 Sundry expense’ 6,000 Further plant and tools (6,200 + 25,000 ~ 3,000) 28,200 Establishment expenses: For 9 months @ ue = 875 p.m. 8775 it screrraaea 33658 ocadnlned Wit cAiscawision for contin Contract Costing ws omtorl cow» (326575425 28) a0 ct price estimated total cost sai2s \ sont 6 Ny) oe \ mated Total Profit a Cash resid ‘ Work cerfed Ny = $4,195 15,000 | 90 4,00,000" jog ~ €19,178 sn 6 A contractor is engaged in the 10M 5.2012 was as under {Re construction of a bridge. The cost in ne ine abricator pireot materials pireet labour overheads rection cost of date the contract price is T11 crore and cash received ti LY Ai) yo A) avin Dist stein vom Direct labour and overheads oo hy Erection pe J You are required to estimate the profit that could be taken to Profit and Loss Account 1] spss the partly completed contract as on 31-3-2012 (CA Inter) a3 x Solution al Notional profit is %92.48 lakh as per calculations shown below: Notional profit * 3 * Work ceitied Profit transfer to P&L Ale 2,, 0k 92.48 * 5° 3642.48 ahh = %57.5769 lakh. As the contract is 58.40% complete, 2/3 of the notional profit on cash basis transferred PAL Alc,8.32 O Contract Costing Working Notes: Calculations of Notional and Estimated Profit Zin lakh Cost to date Further costs Total Completion z Completion z z to date (@) to be done @) (@+y Fabrication: Direct materials 70% 30% 120.00 400.00 Direct labour 70% 40% 66.67 166.67 Overhead 60% 40% 40.00 100.00 Total 226.67 666.67 Erection cost 40% 60% 165.00 275.00 Total cost 941.67 Profit 158.33 642.48 1,100.00 Notional profit Furture profit Work certified Estimated profit on the whole contract * 0 Cost to date Total cost 3158.33 x ae %92.48 lakh 941.67 158.33 - 92.48 = %65.85 lakh Cost to date + Profit to date 550 + 92.48 = %642.48 lakh Degree of completion of contract to date = Cost of contract to date Contract price °° 642.48 lakh “Tsi00 lakh * 1007 58.40%. Scanned with CamSca