CMA-I; SEMESTER-II

CONTRACT COSTING (C.U SUMS FOR REVISION)

1) The following particulars are available in respect of a contract as on 31st March, 2008 (all figures in rupees)

(i) Contract price 500000 (ii) Total cost of contract upto date 287500

(iii) Cost of uncertified work 12,500 (iv) cash received 265625

(v) Retention money @ 15%

Compute the amount of profit that may be credited to Profit and Loss Account and the value of work-in-progress

Solution

(a) Calculation of Notional Profit

Value of work certified (Note I) 3, 12,500

Add: Cost of work uncertified 12 500

--------------

3, 25,000

Less: Total cost of contract upto date 2, 87,500

---------------

Notional Profit 37,500

(b) Calculation of Percentage of Completion

100 x (Value of Work Certified + Cost of Work

Uncertified)

P e r c e n t a g e o f C o m p l e t i o n = - - - - - - - - - - - - - - - - - - - - - - -
Contract Price

(3, 12,500 +12,500)

_________________ x 1 00 = 65 %

5, 00,000

(c) Profits to be credited to Profit and Loss Account

2 Cash Received 2 2, 65,625

— x Notional Profit x _________________ = _ x 37,500 x = INR 21,250.

3 Work Certified 3 3, 12,500

(d) Value of Work in Progress

- -

Cost of contract to date 287500

Add: Profit transferred to Profit and Loss Account 21,250
3,08,750
Less: Cash received 2,65 625
Value of Work in Progress
- - 43,125
Working Note :

(I) Value of Work Certified = cash received/(100% -

retention%)=265625/(100%-15%)=INR 312500
 2) Ambuja Construction Ltd. entered into a contract to construct a building. The contract value was INR 1300000 to be realised in instalment on
the basis of value of work certified by the architect subject to retention of 10%. The work commenced on 1.4.2008 but it remained incomplete on
31.12.2008 when the final accounts are to be prepared. The facts and figures of the contract are:

Materials issued to contract 360000 Wages paid 174000

Expenses incurred on the contract 77,500 Plant sent to site on 1.4.2008 64000

Wages unpaid 6,300

Total establishment expenses amounted to INR 82000 out of which 25% is attributable to the contract. Out of

materials issued to the contract, materials Costing INR 8,000 were sold for INR 12000. A part of the plant (cost INR 4000) are damaged on 10, 2008
and scrap realised only INR 600. Plant costing INR 6000 was transferred to another contract on 11.12.2008. Plant is to depreciated @ 10%p.a. Material
in hand on 31.12.2008 was INR 35000. Cash received from the contractee was INR 612000. Cost of work yet to be certified was INR 60000.
PREPARE CONTRACT ACCOUNT AND CONTRACTEE ACCOUNT IN THE BOOKS OF AMBUJA CONSTRUCTION LTD.

Solution

In the books of Ambuja Construction Limited.

Contract Account
(Period1.4.2008-31.12.2008)

Dr. Cr
PARTICULARS PARTICULARS
TO DIRECT 360000 BY SALE OF MATERIALS 12000
MATERIALS

TO DIRECT 174000 BY MATERIALS IN HAND 35000

WAGES

ADD: WAGES 6300 180300 COST OF CONTRACT c/d 600000

UNPAID

TO EXPENSES 77500

TO 20500
ESTABLISHMENT
EXPENSES
(82000*25%)

TO PROFIT ON 4000
SALE OF
MATERIALS

TO 4700
DEPRECIATION
ON PLANT (NOTE
1)

600000 600000

TO COST OF 600000 BY CONTRACTEE A/C 680000

CONTRACT b/d
TO NOTIONAL 140000 BY COST OF WORK UNCERTIFIED 60000
PROFIT c/d

740000 740000

TO PROFIT AND 84000 BY NOTIONAL PROFIT b/d 140000

LOSS A/C

TO RESERVE 56000
PROFIT c/d

140000 140000

TO MATERIALS 35000 56000

BY RESERVE PROFIT b/d

6300
BY WAGES UNPAID

CONTRACTEE ACCOUNT
Dr. Cr.
TO CONTRACT BY BANK A/C (CASH
A/C 6800000 RECEIVED) 612000
BY BALANCE c/d 68000

680000 680000

Working Notes

(I) Calculation of Depreciation on Plant :

Cost of Plant sent to site (I.4.2008) 64000

Less: Cost of Plant Damaged (1.10.2008) 4000

60000

(a) Depreciation for 6 months on INR 64,000 @10% p.a.[64000*(10/100)*(6/12)]= INR 3,200
(h) Depreciation for 3 months on INR 60000 @ 10% p.a [ 60000*(10/100)*(3/12)]=INR 1500

TOTAL 4700

2) Value of work certified = cash received/ (100%-Retention %)= 612000/(100%-10%)

3) percentage of completion = (680000+60000)/1300000*100=56.92%

4) calculation of profit to be credited to profit and loss account= 2/3 * 140000* 612000/680000=INR 84000
3)

A firm of building contractors undertook a contract fort 350000. The Following particulars are furnished for the year
ended 31st December, 2011 :
Materials : Wages for Labour 40000
Direct Purchased 30,000 General Plant in use :
Issued from Stores 10,000 Wdv 90000
Direct Expenses 2500 dep thereon 10000
Subcontract Charges 2,500
6,000 Share of General Overhead 2000
Materials in Hand on 31.12.2011 2,000 Material Lost by Fire 500
Outstanding Wages on 31.12.2011 6,000 Direct Expenses Accrued on 31.12.2011 1000
Cash Received (90% of work certified) 1,62,000 Cost of uncertified work 5,000

contract account (Jan 1- Dec 31,2011)

Dr. Cr.
particulars particulars
To Direct Materials :
Direct Purchase 30000
issued from stores 10000 40000 By Materials in Hand 2000
To Direct Wages 40,000
Add outstanding 6000 46000 By Materials lost by Fire 500
To Direct Expenses 2,500
Add: Direct Expenses
Accrued 1.000 3500 By Cost of Contract cid 105000
To Share of General
Overhead 2000
To Depreciation 10000
To Sub-contract Charges 6000
107500 107500
To Cost of Contract b/d 105000 By Contractee A/c (Note 1) 18000
To Notional Profit c/d
(Note 2) 80000 By Cost of Work Uncertified 5000
185000 185000
To Profit and Loss A/c
(Note 4) 48000 By Notional Profit b/d (Note 2) 80000
To Reserve Profit c/d 32000
80000 80000
To Materials in Hand 2000 By Reserve Profit b/d 32000
To Cost of Work
Uncertified 5000 By Outstanding Wages 6000
By Direct Expenses Accrued 1000

Working note
Calculation of work certified= 162000/90*100= INR 180000
calculation of notional profit: value of work certified 180000 + cost of work uncertified 5000 – cost of contract = 80000
calculation of percentage of completion= (180000+5000)/ 350000*100= 52.86%
Since the contract is 52.86 % complete, profit to be transferred to profit and loss account is calculated as follows= 2/3*80000*162000/180000= INR
48000

4) S Co. (2013) Ltd., a firm of building contractors, undertook a contract for 6,50,000 to realize on the basis of certified by the
architect subject to a retention of 10%. The work commenced on 1.04.2012 but it remained incomplete on 31.12.2012 when
the final accounts are to be prepared. The facts s and figures of the contract are:

Materials charged to contract 180000

Wages paid for Labour 87000

Plant charged to contract at the commencement 32000

Expenses incurred on contract 38,750

Total establishment expenses amounted to 41000 out of which 25% is, attributable to this contract. Out of the materials
issued to the contract, materials costing 4,000 were sold for 5,000. A part of the plant cost (2,000) was damaged on 01.10.20I 2
and the scrap was realized 300 only. Plant costing 3,000 was transferred to another contract site on 31.12.2012. Plant is to be
depreciated @10%p.a. Materials on hand on 31.12.2011 was 17,500. Cash received from the contractee 3, 06,000. Cost of work
not yet certified 30000.

Prepare Contract Account showing therein the amount of profit or loss to be transferred to Profit and Loss Account.

Solution

In tho books of S & Co. (2013) Ltd.

Contract Account
(Poriod: April 1, 2012 to Docombor 31, 2012)

Particulars INR particulars INR

To Direct Materials 180000 By Bank - Sale of Materials 5000
To Direct Wages 87000 By Direct Materials in Hand c/d 17500
By Plant (damaged 1900+ returned
To Direct Expenses 38750 2775+ at site 24975) note 1,2,3 29650
To Establishment Expenses (25% of 41,000) 10250 By Cost of Contract c/d 296850
To Plant at Cost 32000
In Profit on Sale of Materials (5,000 - 4,000) 1000
349000 349000
To Cost of Contract b/d 296850 By Contractee A/c (Note 4) 340000
To National Profit c/d 73150 By Coct of Wort. Uncertfied 30000
370000 370000
To Profit and Loss Nc (Note 7) 43890 By Notional Profit b/d 73150
To Reserve Profit c/d 29260
 73150 73150
Illustration 45
To Direct Materials in Hand 17500
31.12.2015 : To Plant at Valuation (Note 3) 24975 By Reserve Profit b/d 29260
Materials sent to site 3,00,000
16,00,000 32,000
Wages unpaid
3,60,000 4,00,000
52,000 10,0(X)
Plant sent to site
7,20,000 20,000
16,000 Materials returned to stores 22,000
Materials stolen from site
To Cost of Work Uncertified b/d 30000

Working note

i) Cost of damaged plant= 2000 Dep. Upto date if damage:( 2000*10%)*(6/12)=100 wdv of the damaged plant: cost- dep= 2000-
100=1900
ii) cost of plant transferred= 3000 dep. For 9 months= 3000* (10/100)*(9/12)=225
wdv of plant transferred= 3000-225=2775
iii) cost of plant at site: 32000-2000-3000=27000
dep. Of plant at site = 10% of 27000* (9/12)=2025
wdv of plant at site=27000-2025=24975
iv) value of work certified= retention is 10% so, cash received= 90% of the work certified
cash received=306000 so, work certified= (306000/90)*100=340000 v) notional profit= 340000+30000-296850=73150
vi)percentage of completion= (340000+30000)/650000*100=56.92% vi)profit to be transferred to profit & loss=
2/3*73150*306000/340000=43800

5) Sinha & Co. undertook a contract to construct a building for which the following information are supplied on 31.12.2015.Construction

started on 1st January, 2015.

Contract price 1600000

Wages paid 360000

Other expenses 52000

Cash received 720000

Materials lying unconsumed 16000

Insurance claim admitted for materials stolen 14000

 Materials sent to site Wages unpaid 3,00,000 32,000

Plant sent to site 400000

Materials returned to stores 10000

Materials stolen from site 20000
work uncertified 22000

Plant is subject to depreciation @ 7.5% p.a. and cash has been received for 90% of work certified. Prepare Contract account.

IN THE BOOKS OF SINHA& CO.

Dr. CONTRACT ACCOUNT (JAN1 TO DEC 31,2015) Cr.
PARTICULARS INR PARTICULARS INR
To Direct
Materials By Direct Materials : returned
to store 10000+in hand
300000 16000+stolen 20000 46000
To Direct Wages
360000 Add:
Outstanding
Wages To Other
Expenses 2000
362000 By Cost of Contract c/d 698000
To other expenses 52000
To Depreciation
on Plant (Note 1) 30000
744000 744000
To Cost of
Contract b/d 698000 By Contractee A/c (Note 2) 800000
To Notional By Cost of Work Uncertified
Profit c/d 124000 c/d 22000
822000 822000
To Profit and
Loss A/c 74400
To Reserve Profit
c/d 49600 By Notional Profit b/d 124000
124000 124000
To Direct
Materials in Hand 16000 By Reserve Profit b/d 49600
To Cost of Work
Uncertified 22000 By outstanding wages 2000
Working note
 i) Dep. On plant= 400000* (7.5/100)=30000 ii) cal. Of work certified= 720000/90*100=800000 iii) percentage of
completion= (800000+22000)/1600000*100=51.38% iv) profit to be transferred to profit and loss a/c=
2/3*124000*720000/800000=74400

TRY IT OUT YOURSELF

1)From the following particulars relating to a contract, prepare (a) the Contract Account,
(b) Contractee’s Account:

The contract price has been agreed at Rs.2,50,000. Cash has been received from the contractee
amounting to Rs.1,80,000.

2) Calculate profit on work certified, cost of work in progress at the year end from the
following:

(a) Materials sent to site Rs.86,000;

(b) Labour on site Rs.70,000;

(c) Plant at site Rs.80,000;

(d) Direct Expenses Rs.3,000;

(e) Office expenses Rs.4,000;

(f) Materials returned to stores Rs.600;

(g) Work certified Rs.1,90,000;

(h) Work not certified Rs.7,700;

(i) Materials in stock at end Rs:2,000;

(j) Outstanding wages Rs.300;

(k) Cash received against bill Rs.1,61,500;

(l) Depreciation on plant Rs. 7,000.

3) Calcutta Construction Ltd. undertook a contract for construction of a bridge on 1st July,
1991. The contract price was Rs.5,00,000. The Company incurred the following expenses up
to December, 1991:

Depreciation 10% p.a. on plant

Charge other works expenses @ 20% of wages and office expenses @ 10% of works cost.

The amount certified by the engineer was Rs.3,00,000, retention money being 20% of the certified
value.

Prepare the Contract Account showing therein the amount of profit that the company can
reasonably take to its Profit and Loss Account.

CHECK YOUR ANSWER AND GET CONFIDENT

Q 1.
Q2
Q3
HARDER PROBLEMS

1) A contractor commenced a contract on 1-7-2013. The costing records concerning the said contract
reveal the following information as on 31-3-2014. Material sent to site7,74,300 Labour
paid10,79,000 Labour outstanding as on 31-3-2014 1,02,500 Salary to Engineer 20,500 per month
Cost of plant sent to site (1-7-2013) 7,71,000 Salary to Supervisor ( 3/4 time devoted to
contract)9,000 per month Administration & other expenses 4,60,600 Prepaid Administration
expenses10,000 Material in hand at site as on 31-3-2014 -75,800 Plant used for the contract has
an estimated life of 7 years with residual value at the end of lifeRs.50,000. Some of material
costingRs.13,500 was found unsuitable and sold forRs.10,000.Contract price wasRs.45,00,000.
On 31-3-2014 two third of the contract was completed. The architect issued certificate covering
 50% of the contract price and contractor has been paid Rs.20,00,000 on account. Depreciation on
plant is charged on straight line basis. Prepare Contract Account. (Ans.: P & L A/c = 1,60,178, WIP
(reserve): 1,10,122)

2) Compute a conservative estimate of profit on a contract (which has been 90%complete) from the
following particulars. Calculate the proportion of profit to be taken to Costing Profit & Loss Account
under various methods and give your recommendation. Total expenditure to date 4,50,000
Estimated further expenditure to complete the contract (including contingencies)25,000 Contract
price 6,12,000 Work certified 5,50,800 Work uncertified 34,000 Cash received 4,40,640.

(Ans.: amount to be transferred toP&LA/c- 98,640)