When the work or job gets completed for more than one accounting period

the contract costing would be applicable

E.g., Ship building, construction of roads, houses

the person who performs the contract is called as contractor

the person who delegates the contract is called as contractee
The price for the entire tenure is called as contract price

Work certified
From the date of the contract until end of that particular accounting period (few days before the accounting end date)
the work completed by the contractor will be certified by professionals or architects
this is the amount that is due from the contractee to the contractor for that
particular accounting period.
The contractee may pay the entire work certified or as % on that

Work Uncertified
From the date of work certified until the end date of accounting period, the expenses that are incurred by the contractor on th
to be work uncertified.
Example
Contract start date Accounting period end date
1st Jan 2019 31st dec 2019

Work certified date 25th dec 2019

Any expenses that is incurred on the contract from 26th dec to 31st dec will be considered as work uncertified

Retention Money/ Clause

When the entire contract is getting completed, some amount of money are held as safety deposit with the contractee
Such money is called as retention money

Usual accounting procedure

Example : Contract period is 3 years

I year 300000 Expenses
II Year 500000
III 600000
Contract Price 2000000

Contract I year
To exp 300000 By loss c/d 300000

Contract II year
to bal b/d 300000
To exp 500000 By loss c/d 800000
Contract III Year
To bal b/d 800000 By Contract 2000000
To exp 600000
To Profit 600000

In this , the 2 years are shown at a loss wherein the actual profit for the contract is 600000, hence this amount should be prop
distributed during the contrat period. Hence the contract costing are in place

FORMAT OF CONTRACT COSTING

Contract Year I
To Actual expenses By WIP:
(Accounting period) Work Certified
To Notional profit 1st Jan - 25th dec 2019
transferred to Costing P&L Work uncertified
26th jan - 31st dec 2019
To Dep on assets
that are involved in the contract

OR
To cost of asset By WDV value of asset at the end of accounting period

Contract Year (End)

To Actual expenses By Contractee (contract price)
(Accounting period)
To Notional profit
transferred to Costing P&L

To Dep on assets
that are involved in the contract

* Notional profit are estimated profits to be given in each year, it is not the actual profit

FORMULAE
% of completion Work certified/Contract price*100

Amount to be transferred to Costing P&L

this will be based on the % of completion of the contract

% of completion Transfer to Costing P&L

Less than 25% Nil
25%-50% 1/3*Notional Profit*Cash received/Work certified
50% - 90% 2/3*Notional Profit*Cash received/Work certified

1. Notional Profit*Work certified/Contract price

Above 90%
 Above 90% 2. Notional profit*work certified/contract price*Cash received/work certified
3. Notional profit* Cost to date/Total cost
4. Notional profit*Cost to date/Total cost*Cash received/Work certified

Q1 Handout
Convert in terms of '000

Contract Price (CP) 10800000 10800

Budgeted profit 1800000 1800
Cost of plant 800000 800

WDV of plant (after dep) 500000 500

Direct wages accrued 110000 110

Cost of materials at site (Closing

stock) 1800000 1800

Contract account for the year ended 31.3.2002

By Materials
Materials issued to site 5,000 returned from
site
100

Direct wages paid By WIP:

3800

Add:Accrued direct wages Work certified

110 3910 10000

Plant hired By Closing stock:

700

Site office cost Materials @ site 1800

270

By WDV of
Direct expenses
plant
600 500
To cost of plant 800

To Notional Profit/Estimated
profit
1120
b/f
Total 12,400 12400
By Notional profi 1120
WN1 Calculation of % of completion

% of completion = WC/CP*100 10000/10800*100

WC = work certified 92.59 %
CP = Contract price

% of completion = 92.59%

Calculation of Profit to be transferred to costing P&L

Notional
profit/
Budgeted
Profit*work
certified/co
ntract
price*Cash
received/w
Above 90% ork certified
1800*(10000/10800)*(7200/10000)
1800*(10000/10800)*(7200/10000)
1800*7200/10800
Profit to be transferred to costi 1200

Whenever you are given estimated or budgeted profit, then please

take the same for calculation of transfer tocosting P&L
If not, then consider Notional Profit
In this case, we have been given Budgeted profit as 18 lacs

Illu 6

WN1 Calculation of Depreciation

Plant cost 300000
Dep 1st year 75000
Book Value as of 2016 225000
Dep 2nd year 56250
Book Value as of 2017 168750
Dep 3rd year 42187.5
Book value as of 2018 126562.5

Contract account for year 2016

Particulars Amount Particulars Amount
To materials 675000 By WIP:
To waes 620000 Work Certified 1350000
to Transportation cost 30000 Work Uncertified 15000
Tro Oter expe 30000 By Loss B/f 65000
To Dep 75000

1430000 1430000

Contract account for year 2017

Particulars Amount Particulars Amount
To Op WIP:
Work certified 1350000
Work uncertified 15000
To materials 1050000 By WIP:
To waes 900000 Work Certified 4500000
to Transportation cost 90000 Work Uncertified 75000
Tro Oter expe 75000
To Dep 56250
To Notional Profit b/f 1038750
4575000 4575000 0

Contract account for year 2018

Particulars Amount Particulars Amount
To Op WIP: By Contractee a/c (CP) 6000000
Work certified 4500000 By loss b/f 366187.5
Work uncertified 75000
To materials 900000
To waes 750000
to Transportation cost 75000
Tro Oter expe 24000
To Dep 42187.5
6366187.5 6366187.5 0

Costin P&L
Particulars Amount Particulars Amount
To Loss - 2016 65000 By Notional profit 2017 1038750
To Loss - 2018 366187.5
To Estimated profit 607562.5
1038750 1038750 0

Q2 Handout

The total cost expected for the contract would be Actuals + Estimates
If the expenses are O/S for the
current year, it is first added in
the current year and deducted
from Estimated year

If the expenses are Prepaid in

the current year, it is first
deducted in the current year
and ADDED IN Estimated year

WN1 Labour cost

Labour paid 305000

Add Outstanding at the end 24000
Current year total 329000

Estimated
Labour paid 380000
Add Outstanding at the end 37500
Total estimated 417500

The Outstanding of the current

year will be either included in
the labour paid or O/S of the
next year. So we will have to
remove the O/s of the previous
to totall up the Labour cost

Current Year total 329000

Estimated total 417500
Less: O/S of the Previous year whi -24000
Total Labour cost 722500

WN2 Expenses

Current year 100000

Prepaid in the current year -22500
Net current year 77500

Estimated year 175000

Add: O/s 25000
Less Prepaid of current year 0
Add: Prepaid of previous year ded 22500
Total Estimated expenses 222500

Total Expenses
Current year + Estimated year 300000

WN3 Plant returned to stores

Cost - current year 75000

Less: Depreciation
20% on WDV 15000
WDV for current year(2009-10) 60000
April 1 2009 to Mar 31st 2010

Cost - Estimated year 150000

Less Depreciation
20% on WDV until March 31st 20 -30000
April 1 2010 to Mar 31st 2011 120000
Book value is given until Dec 2011 and also the entire contract period is as of 2011
Less: Depreciation
20% on WDV until Dec 31st 2011
9 months
120000*20%*9/12 -18000

WDV of Plant returned to stores 102000

Total WDV of Plant returned to stores

Current year 60000
Estimated year 102000
Total WDV of Plant returned to s 162000

Memorandum Contract Account as of 2010-11

To Materials issued: Amount Amount By Plant returned Amount
2009-10 456000 By Plant returned 162000
2010-11 814000 1270000 WN3
To Labour expenses By Material at site
WN1 722500 Closing stock 75000
To Plant Purchases By Contract price 2712500
2009-10 225000
2010-11 0 225000
To Expenses
WN2 300000
To Notional Profit (b/f) 432000
2949500 2949500
0

WN4 Transfer to Costing P&L

% of completion Work certified/Contract Price*100
1275000/2712500*100
% of completion 47.0046083

Though the % is less, we have

found the budgeted profit, The
formula is instructed So we will have to find out based on that ignoring the % of completion

Notional profit*work certified/contract price*Cash received/work certified

432000*1275000/2712500*1000000/1275000
432000*1000000/2712500
Profit to be transferred to 159263
Costing P&L a/c

Contract Account for the year 2009-10

To Materials issued 456000 By Plant returned to stores
To Labour: 305000 WN1 first part (WDV value of 60000
Add O/S 24000 329000 By Materials at site 30000
To Plant purchased 225000 By Plant at Site:
To Expenses 100000 Closing balance 120000
Add O/S 0 By WIP:
Less Prepaid -22500 77500 Work certified 1275000
Work uncertified 40000 1315000
To Notional profit 437500
Total 1525000 1525000
To costing P&l By Notional profit c/d 437500
WN4 159263
To WIP Reserve
B/f 278237
Total 437500 437500

Q3 handout

Contract start date 1/7/2011

End of the accounting period 31/3/2012
Calculation 9 months

WN1 Calculation of Depreciation

Dep = Cost of asset - scrap value/Estimated life
771000-50000/7 103000 per annum

For Contract period of 9 months 103000*9/12

Depreciation 77250

Contract Account for the period 1.7.2011 to 31.3.2012 (9 months)

To Materials sent to site 774300 By Materials in h 75800
To Labour: 1079000 By Materials sold ( 10000
Add O/S 102500 1181500 By Loss on sale ( 3500
To salary to engineer 20500*9 184500 By Cost to contra 2639600
To Depreciation (WN1) 77250 b/f
To Salary to supervisor
(3/4 time to contract) 9000*9*3/4 60750
To Admn expenses 460600
Less:Prepaid -10000 450600
Total 2728900 2728900 0
To Cost to date or cost of contract 2639600 By work certified (WN2) 2250000
By work uncertified (WN2) 534450
To Notional Profit (b/f) 144850
Total 2784450 2784450
To Costing P&L 85837 By notional profit b/d 144850
To WIP reserve
b/f 59013
Total 144850 144850

WN2 Calculation of work certified and Uncertified

Contract price 4500000

Work certified (given) 50% of contract price
Work certified 4500000*50%
Work certified 2250000

Work uncertified

Total cost to date 2639600

Less Work certified 2250000
Material @ site 75800
Plant @ site cost 771000
Depreciation (if any) 77250
Work uncertified -534450
Credit balance
WN3 Calculation of profit to be transferred

given % of completion is 2/3

67%
Profit to be transferred = 2/3 * Notional Profit*Cash received/Work certified

2/3*144850*2000000/2250000 85837.037
Profit to be transferred to costi 85837.037

Q4 Handout

Charging the Plant value and WDV

ABID Contructions contract a/c
To Materials issued to site 7700 By Materials returned to sto 175
To Direct wages paid 3300 Byy WIP:
Add: Outstanding wages 100 3400 Work Certified 12650
To Site office cost 550 Work uncertified 225 12875
Less: Prepaid -50 500 By Materials at site (Closing 110
To Plant (Purchase) 800 By WDV:
To Notional Profit b/f 1650 Plant cost 800
less Depreciation
800*15%*4/12 -40 760
From Dec 1st to March 31st)

By Costin P&L
(Material lost
due to fire) 130
14050 14050

Charging only the depreciation

ABID Contructions contract a/c
To Materials issued to site 7700 By Materials returned to sto 175
To Direct wages paid 3300 Byy WIP:
Add: Outstanding wages 100 3400 Work Certified 12650
To Site office cost 550 Work uncertified 225 12875
Less: Prepaid -50 500 By Materials at site (Closing 110

By Costin P&L
(Material lost
To Deprication 40 due to fire) 130
To Notional Profit b/f 1650
13290 13290
To costing P&L WN2 880 By Notional Profit c/d 1650
To WIP Reserve (b/f) 770
1650 1650
WN1 % of completions

% of completion Work certified/Contract Price*100

12650/17100*100
% of completion 74%

WN2 transfer to P&L a/c

If it is between 50-90% 2/3*NP*CR/WC

2/3*1650*10120/12650
Profit to be transferred 880

Contractee A/c
To bal c/d (b/f) 10120 By Bank (Ca 10120

10120 10120

Costing P&L a/c

To ABID Contract By ABID con 880
Material lost due to fire 130
To Net Profit b/f 750
880 880

Balance sheet (Extracts)

Capital Plant 800
Add: Net Profit 750 750 Less Dep 40 760
Outstaniding wages 100 Prepaid site office cost 50
WIP:
Work certified 12650
Work uncertified 225
WIP Reserve 770
Cash ( received) 10120
Closing stock:
Materials @ site 110
The balance sheet will not tally since we do not have entire information of the company

Q5 Handout

Z Ltd. contract a/c

To Op WIP: By Materials returned to sto 30000
Work certifed 1200000 By Materials returned to sup 20000
Work uncertified 20000 1220000 By WIP:
To Materials @ site (Opening bal) 15000 Work certified 3500000
Add Materials purchased 160000 Work uncertified 40000 3540000
To Materials issued from stores 500000 By Materials at site - Cl stk 30000
To Wages and salaries paid 700000
Add: Closing balance of Outstand 20000
Less Opening balance of Outstan -10000 710000
To drawings and maps 60000
To sundry expenses 15000
To Electricity charges 25000
To Plant hire expenses 60000
To Sub contract cost 20000
To Notional Profit (b/f) 835000
3620000 3620000
To Costing P&L 417500 By notional profit c/d 835000
To WIP reserve B/f) 417500
835000 835000

WN1 % of completion
% of completion WC/CP*100
3500000/5000000
70%

WN2 Transfer to P&L a/c

Cash received 75% of work certified

3500000*75%
Cash received 2625000

Transfer to P&L a/c 50-90%

2/3*NP*CR/WC
2/3*835000*2625000/3500000
Transfer to P&L a/c 417500

Contractee A/c
To bal c/d 2625000 By Bank (Cl 1725000
Cash paid By Bank(Op bal of WC)
1200000*7 900000
2625000 2625000
unting end date)

d by the contractor on the contract is considerd

the contractee
amount should be proportionately