CONTRACT COSTING

Solution:

a) Value of Work Certified = 𝐶𝑜𝑛𝑡𝑟𝑎𝑐𝑡 𝑃𝑟𝑖𝑐𝑒 × % 𝑜𝑓 𝑤𝑜𝑟𝑘 𝑐𝑒𝑟𝑡𝑖𝑓𝑖𝑒𝑑

= 10,00,000 × 75%
= Rs. 7,50,000

𝐶𝑎𝑠ℎ 𝑅𝑒𝑐𝑒𝑖𝑣𝑒𝑑
b) Value of Work Certified = =
𝐶𝑎𝑠ℎ 𝑅𝑒𝑐𝑒𝑖𝑣𝑒𝑑 𝑎𝑠 𝑎 % 𝑜𝑓 𝐶𝑜𝑛𝑡𝑟𝑎𝑐𝑡 𝑃𝑟𝑖𝑐𝑒
4,80,000
= 𝑅𝑠. 6,00,000
80%
PRACTICAL QUESTIONS:
Q1.
SOLUTION:

CONTRACT A/c
PARTICULARS AMOUNT PARTICULARS AMOUNT
To Material issued from Stores 50,000 By Profit and Loss A/c
To Materials Purchased 45,000 - Plant lost 2,000
To Plant and Machinery 35,000 - Material lost 1,500 3,500
To Wages 1,00,000 By Materials Sold 2,500
(+) Accrued 40,000 1,40,000 By Plant returned to Stores 450
To Direct Expenses 10,000 By Profit and Loss A/c 200
(+) Accrued 2,500 12,500 (Useless plant returned)
To Establishment Expenses 6,500
To Profit and Loss A/c 500
(Profit on Sale of Materials)
By Plant at Site (Closing) 29,070
By Balance c/d
- Work Certified 2,40,000
- Work Uncertified 1,000
By Profit and Loss A/c
(Loss on Contract) 12,780
2,89,500 2,89,500

BALANCE SHEET AS AT 31ST DECEMBER 2015 [EXTRACT]

LIABILITIES AMOUNT AMOUNT ASSETS AMOUNT AMOUNT
Outstanding Expenses Plant & Machinery 35,000
- Wages 40,000 Less: Lost (2,000)
- Direct Expenses 2,500 42,500 33,000
Less: Useless (200)
32,800
Less: Depreciation @10% (3,280) 29,520

Work-in-Progress:
Work Certified 2,40,000
Work Uncertified 1,000
2,41,000
Less: Cash Received (1,92,000) 49,000

By Profit and Loss A/c

- Loss on Contract 12,780
Q2

CONTRACT A/c
PARTICULARS AMOUNT PARTICULARS AMOUNT
To Materials issued 43,000
To Foreman’s Salary 12,620
To Labour 1,00,220
To Depreciation on Plant 1,120
To Supervisor’s Salary 9,000
9 1
[24,000 × 12 × 2]
To Misc. Expenses 14,000 By Balance
- Materials on Site 2,500
To Notional Profit c/d 66,905 - Work Certified 2,00,000
- Work Uncertified [WN2] 44,365

2,46,865 2,46,865

To Profit and Loss A/c [WN2] 35,683 By Notional Profit b/d 66,905
To WIP Reserve 31,222

66,905 66,905

WORKING NOTE:
1. Calculation of Depreciation of Plant:
30,000 − 2,000
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 = = 5,600
5 𝑦𝑒𝑎𝑟𝑠
 1
Depreciation to be charged to Contract A/c = 5,600 × 5 = 1,120

2. Calculation of Work Uncertified

Cost incurred till date (2/3 complete) = 1,79,960
Less: Materials at site = (2,500)
1,77,460

2 3
If 3 of the cost is 1,77,460 then estimated total cost = 1,77,460 × 2 = 2,66,190

Work Certified is 50% of Contract Price

∴ Cost of Work Certified = 2,66,190 × 50% = 1,33,095

∴ 𝐶𝑂𝑆𝑇 𝑂𝐹 𝑊𝑂𝑅𝐾 𝑈𝑁𝐶𝐸𝑅𝑇𝐼𝐹𝐼𝐸𝐷 = 𝐶𝑜𝑠𝑡 𝑖𝑛𝑐𝑢𝑟𝑟𝑒𝑑 − 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑊𝑜𝑟𝑘 𝐶𝑒𝑟𝑡𝑖𝑓𝑖𝑒𝑑

= 1,77,460 – 1,33,095 = 44,365

3. Calculation of Profit transferred to Profit and Loss A/c from Notional Profit
2 𝐶𝑎𝑠ℎ 𝑅𝑒𝑐𝑒𝑖𝑣𝑒𝑑
𝑃𝑟𝑜𝑓𝑖𝑡 𝑡𝑜 𝑏𝑒 𝑡𝑟𝑎𝑛𝑠𝑓𝑒𝑟𝑟𝑒𝑑 = 𝑁𝑜𝑡𝑖𝑜𝑛𝑎𝑙 𝑃𝑟𝑜𝑓𝑖𝑡 × ×
3 𝑊𝑜𝑟𝑘 𝐶𝑒𝑟𝑡𝑖𝑓𝑖𝑒𝑑

2 1,60,000
𝑃𝑟𝑜𝑓𝑖𝑡 𝑡𝑜 𝑏𝑒 𝑡𝑟𝑎𝑛𝑠𝑓𝑒𝑟𝑟𝑒𝑑 = 66,905 × 3 × 2,00,000 = Rs. 35,683
Q3 – SELF SOLVE
Q4
SOLUTION:

CONTRACT A/c for the year ending 2014

PARTICULARS AMOUNT PARTICULARS AMOUNT
To Materials 9,00,000
To Wages 8,50,000
To Direct Expenses 35,000
To Indirect Expenses 15,000 By WIP
To Plant 1,00,000 - Work Certified 17,50,000
- Plant 80,000
By Profit and Loss A/c 70,000

19,00,000 19,00,000

CONTRACT A/c for the year ending 2015

PARTICULARS AMOUNT PARTICULARS AMOUNT
To WIP
- Work Certified 17,50,000
- Plant 80,000
To Materials 11,00,000
To Wages 11,50,000
To Direct Expenses 1,25,000 By WIP
To Indirect Expenses 20,000 - Work Certified 56,50,000
- Work Uncertified 1,00,000
To Notional Profit c/d 15,75,000 - Plant 50,000

58,00,000 58,00,000

To Profit and Loss A/c 9,45,000 By Notional Profit b/d 15,75,000

(2/3 × 15,75,000 × 90%)
To WIP (Reserve) A/c 6,30,000

15,75,000 15,75,000

CONTRACT A/c for the year ending 2016

PARTICULARS AMOUNT PARTICULARS AMOUNT
To WIP By WIP (Reserve) A/c 6,30,000
- Work Certified 56,50,000
- Work Uncertified 1,00,000 By Contractee’s A/c 75,00,000
- Plant 50,000
To Materials 6,30,000
To Wages 8,50,000
To Direct Expenses 45,000 By Plant 20,000

To Profit and Loss A/c 8,25,000

81,50,000 81,50,000
 WIP A/c
DATE PARTICULARS AMOUNT DATE PARTICULARS AMOUNT
2014 To Contract 18,30,000 2014 By Balance c/d 18,30,000

18,30,000 18,30,000

2015 To Balance b/d 18,30,000 2015

2015 To Contract 58,00,000 2015 By Contract 6,30,000
2015 By Balance c/d 51,70,000

76,30,000 76,30,000

2016 To Balance b/d 51,70,000 2016 By Contract A/c 58,00,000

2016 To Contract A/c 6,30,000

58,00,000 58,00,000

Contractee A/c
DATE PARTICULARS AMOUNT DATE PARTICULARS AMOUNT
2014 To Bal c/d 15,75,000 2014 By Bank A/c 15,75,000
15,75,000 15,75,000
2015 By Bal b/d 15,75,000
2015 To Bal c/d 50,85,000 2015 By Bank A/c 35,10,000
50,85,000 50,85,000
2016 To Contract A/c 75,00,000 2016 By Bal b/d 50,85,000
2016 Bank 24,15,000

75,00,000 75,00,000

Balance Sheet [Extract]

LIABILITIES 2014 2015 2016 ASSETS 2014 2015 2016
WIP:
- Work Certified 17,50,000 56,50,000
- Work Uncertified - 1,00,000
- Plant 80,000 50,000
Less: WIP Reserve - (6,30,000)
18,30,000 51,70,000
Less: Cash Received (15,75,000) 50,85,000
2,55,000 85,000
Plant 20,000
Q5
SOLUTION:

CONTRACT A/c
PARTICULARS AMOUNT PARTICULARS AMOUNT
To Materials 34,000
To Direct Wages 6,900 By Material Returned to Stores 550
To Material Issued from Stores 3,800
To Sub-contract Costs 6,300
To Plant 12,000 By Work Certified (60,000 × 4) 48,000
5
To Establishment Exp. (6,900 × 40%) 2,760 By Plant at Site 7,200
By Work Uncertified
- Materials 1,620
- Labour 700
- Establishment Exp. 280 2,600
By Materials on Site 5,000
By Stores on Site 400
By Profit ad Loss A/c 2,010

65,760 65,760

4 48,000
To Work Certified (60,000 × 5)
To Plant at Site 7,200
To Work Uncertified
- Materials 1,620
- Labour 700
- Establishment Exp. 280 2,600
To Materials on Site 5,000
To Stores on Site 400
NOTE: A Contingent Liability of ₹ 1,000 is likely to arise in Future
Q6
SOLUTION:

CONTRACT A/c
PARTICULARS AMOUNT PARTICULARS AMOUNT
To Materials 6,00,000
To Labour 8,30,000
Add: Accrued 6,000 8,36,000
To Expenses 40,000
To Machinery on Site 1,60,000 By Work Certified (12,80,000 ÷ 80%) 16,00,000
By Work Uncertified 16,000
By Machinery returned to Stores 36,750
(42,000 – 12.5%)
To Notional Profit c/d 1,47,000 By Materials on Site 27,000
By Machinery at Site 1,03,250

17,83,000 17,83,000

To Profit and Loss A/c 78,400 By Notional Profit b/d 1,47,000

2 80
(1,47,000 × × )
3 100
To WIP Reserve 68,600

1,47,000 1,47,000
 IN THE BOOKS OF SWASTIK CO. LTD.
BALANCE SHEET AS AT 31ST DECEMBER 2016
PARTICULARS NOTE NO. AMOUNT (₹) AMOUNT (₹)
I. EQUITIES AND LIABILITIES
1. Shareholders’ Funds
a. Share Capital 3,51,800
b. Reserve and Surplus 1 96,900 4,48,700
2. Non-Current Liabilities
a. Long Term Provisions 2 89,500
3. Current Liabilities
a. Trade Payables 81,200
b. Short term Provisions 3 6,000
TOTAL 6,25,400
II. ASSETS
1. Non-Current Assets
a. PPE & Intangible Assets
i. PPE 4 2,86,000
2. Current Assets
a. Inventories 27,000
b. Cash and Cash Equivalents 45,000
c. Other Current Assets 5 2,67,400 3,39,400
TOTAL 6,25,400

NOTES TO ACCOUNTS

NOTE 1: RESERVE AND SURPLUS

Profit & Loss A/c:
Opening Balance 25,000
Less: Provision for Depn (52,000 x 12.5%) (6,500)
Add: Profit on Contract 78,400 96,900

NOTE 2: LONG TERM PROVISIONS

Provision for Depreciation:
Opening Balance 63,000
Add: Provision for Depreciation of C.Y. 26,500 89,500

NOTE 3: SHORT TERM PROVISIONS

Provision for Accrued Labour 6,000

NOTE 4: PROPERTY, PLANT AND EQUIPMENT

Machinery (at Cost) 52,000
Machinery (in stores at cost) 42,000
Machinery (at site at cost) 1,18,000
Land and Building (at Cost) 74,000 2,86,000
NOTE 5: OTHER CURRENT ASSETS
Work-in-Progress:
Work Certified 16,00,000
Work Uncertified 16,000
Less: WIP Reserve (68,600)
15,47,400
Less: Cash Received (12,80,000) 2,67,400
Q7 SELF SOLVE
SOLUTION: