CONTRACT COSTING

BY: PROF. SUDHA PANDEY

WHERE IS CONTRACT COSTING METHOD
USED?
The contract costing method is used mostly by builders, civil contractors, ship builders, and
construction and mechanical engineering firms. Generally, the contract is undertaken at the
site of contract i.e. customer and according to the specifications of customer. More over, the
period inquired to complete a contract is fairly long time or usually more than one year.
The main purpose of preparing contract account is the ascertainment of cost of each
contract separately and profit on each contract
FEATURES OF CONTRACT COSTING

• The work on contract is performed at the contract site which is separate from the work place
of contractor.
• A contract may be of a large size which may be completed in more than one accounting year.
• Each contract is a separate unit for cost determination.
• Contract is completed as per the instruction of the contractee i.e., due to consideration which
is known as contract price.
• Contract is done for a specific consideration which is known as contract price.
• The contractor is paid in instalments which is done after the work completed has been
certified. The work is certified by the engineer, valuer, expert or architect of the
contractee.
CONTRACT LEDGER

A contract Ledger book is kept in which a separate account for each contract is opened. A
contract is known by the number allotted to it, as for instance, Contract No 101. Thus
number and the terms and conditions of the contract pertaining to it are recorded in the
Contract Ledger. In addition to it the following information related to contract are also
mentioned above the contract ledger sheet:
• Place of completing the contract.
• Date of commencement of contract
• Date of completion of contract
• Contract price
• Terms and conditions of receiving instalments
• Date and amount of work to be certified,etc