Illustration 1 :

A construction company undertook a contract at an estimated price of Rs. 108 lakh, which includes
a budgeted profit of Rs. 18 lakh. The relevant data for the year ended 31-3-2018 are as under :

('000)
Materials issued to site 5,000
Direct wages paid 3,800
Plant hired 700
Site office costs 270
Materials returned from site 100
Direct expenses 500
Work certified 10,000
Progress payment received 7,200

A special plant was purchased specifically for this contract at 8,00,000 and after use on this
contract till the end of 31-3-2018 it was valued at 5,00,000. The cost of materials at site
at the end of the year was estimated at 18,00,000. Direct wages accrued as on 31-3-2018 was 1,10,000.

Required :
Prepare the Contract Account for the year ended 31st March, 2018 and compute the
profit to be taken to the Profit and Loss Account.
Solution 1:

Contract Account for the year ended 31st March, 2018

Particulars Rs. '000 Particulars Rs. '000

To Materials issued to site 5,000 By Work-in-Progress
To Direct Wages 3,800 - Material at site 1,800
To Wages accrued 110 - Materials Returned 100
To Plant Hire 700 - Work Certified 10,000
To Site Office Costs 270
To Direct Expenses 500
To Depreciation of Special Plant 300
(800-500)
To Notional Profit c/d 1,220 -
11,900 11,900
To Profit and Loss A/c 1,200 By Notional Profit b/d 1,220
To Work-in-progress c/d 20
(Profit in reserve) - -
1,220 1,220

Working Notes:

1. Percentage of Contract completion = Cost of work certified x 100

Value of the contract

= 100 Lakh x 100

108 Lakh

= 92.59 %

2. Since the percentage of Contract completion is more than 90% therefore the profit to be taken to
Profit and Loss Account can be computed by using the following formula.

Profit to be taken to P and L A/c

Cash Received x Work Certified
= Budgeted / Estimated Profit x Work Certified Contract Price

= 1,800 x 7,200 x 10,000

10,000 10,800
= 1,800 x 7,200
10,800
= 1,200
The following is the summary of the entries in a Contract Ledger as on 31st December 2013 in respect of Contract No. 51:
particulars Rs.
Material (direct) 60,000
Materials (from stores) 13,000
Wages 34,600
Direct Expenses 13,400
Establishment charges 16,000
Plant 68,400
Sale of scrap 3,640
Sub-contract Cost 14,400
You are given the following information:
1) Accruals on 31-12-2013 are : Wages Rs. 1,600 and direct Expenses Rs.2,200.
2) Depreciation on plant upto 31-12-2013 is Rs. 17,100
3) Included in the above summary of abstract are wages Rs. 2000 and other expenses Rs. 3000 since certification. The value of
4) Materials on site on 31-12-2013 cost Rs. 20,000.
5) Work certified was Rs. 1,25,000.
n respect of Contract No. 51:

00 since certification. The value of the material used since certification is Rs. 4,160.
 Contract Account 51 for the year ended 31st March, 2013

Particulars Rs. '000 Particulars Rs. '000

To Materials ( Direct) 60,000 by sale of scrap 3,640
To Materials (stores) 13,000 by W.I.P c/d
To Wages 34,600 - Work certified 125,000
(+) accrued wages 1,600 36,200 - work uncertified 9,160
(2000+3000+4160)
To Direct Expenses 13,400 Materials in hand 20,000
(+) accrued expenses 2,200 15,600
to establishment charges 16,000
to sub contract cost 14,400 By profit and loss a/c 14,500
to depreciation on plant 17,100
172,300 172,300

The contract a/c shows a loss and hence the total amount of loss is transferred to the profit and loss a/c in accordance with th
c in accordance with the convention of conservatism.
 M/s. Rajendra constructions obtained a contract to build a Fly-over Bridge at a contract price of Rs:
150 lacs. The contractee agrees to pay 90% of value of the work done as certified by the architect
immediately on receipt of the certificate and to pay the balance on completion of the contract. The
contractor commenced the work on 1st May 2013 and it is estimated to be completed by 31st
December, 2014. The actual expenditure upto 31st March, 2014 and subsequent estimated
expenditure upto 31st December, 2014 is furnished below :-

ill 18
Estimated Expenditure
Actual Expenditure from
Particulars
upto 31-3-2.14 1-4-2014 to 31-
12-2014
Direct Materials 3,350,000 2,800,000
Indirect Materials 560,000 700,000
Direct Wages 842,000 795,000
Sub Contract Charges 98,000 52,000
Architect's Fees 184,000 284,000
Administrative Overheads 650,000 450,000
Special Equipment Charges 486,000 254,000
Supervision Charges 10,000 p.m. 12,000 p.m.
Establishment Charges 8,000 p.m. 9,000 p.m.
* Other details : Actual (RS) Estimated (RS)
Cash Received 6,750,000 8,250,000
Closing Material at site 410,000 -
Uncertified Work 180,000 -
Certified Work (Cumulative) 7,500,000 15,000,000

A special machinery costing Rs: 13,40,000 was bought for the contract and the estimated scrap value
of the machinery at the end of the contract would be Rs: 1,40,000. It is decided that the Profit to be
taken credit for should be that proportion of the estimated net profit to be realized on completion of
the contract which the certified value of work as on 31st March, 2014 bears to the total contract
price. Maintain 2% provision for contigencies on total cost of contact (excluding such provision for
contingencies).

You are required to prepare the Contract Account for the period ending 31st March, 2014 and show
your calculation of the Profit to be credited to the Profit and Loss Account for the period ended 31st
March, 2014.
 IN THE BOOKS OF RAJENDRA CONSTRUCTION COMPANY
Contact Account (Fly over Bridge) for the period ended 31-03-2014
Particulars Amount
To Direct Materials 3,350,000
To Indirect Materials 560,000
To Direct Wages 842,000
To Sub Contract Charges 98,000

To Architect Fees 184,000

To Special Equipment Hire 486,000

To Supervision Charges (10,000 x 11) 110,000
To Administrative Overheads 650,000
To Establishment Charges (8,000 x 11) 88,000
To Special Machinery (cost) 1,340,000
To Notional Profit c/d 1,062,000
8,770,000

To Profit and Loss Account 823,080

To Reserves 238,920
1,062,000

DEP = 1340000-140000/20 = 60000 PM * 11 MONTH = 6600000

MEMORANDUM CONTRACT ACCOUNT (1-5-2013 TO 31-12-2014)

Particulars Amount
To Work-in-Progress b/d
(87,70,000 - 10,62,000) 7,708,000
To Direct Materials 2,800,000
To Indirect Materials 700,000
To Direct Wages 795,000
To Sub Contract Charges 52,000
To Architect's Fees 284,000
To Admn. Overheads 450,000
To Sp. Equipment Charges 254,000
To Supervision Charges 108,000
To Establishment Charges 81,000
To Prov. for Contingency
(27 of 1,30,92,000) 261,840
To Estimated Profit 1,646,160
15,140,000
RAJENDRA CONSTRUCTION COMPANY
ver Bridge) for the period ended 31-03-2014
Particulars Amount
By Work in Progress
·  Work Certified 75,00,000
·  Work Uncertified 1,80,000
·  Materials at site 4,10,000
·  Machinery at site 6,80,000
8,770,000
(1340000-660000 )

8,770,000

By Notional Profit b/d 1,062,000 (1646160*(7500000/15000000))

823080
1,062,000

1 MONTH = 6600000

RACT ACCOUNT (1-5-2013 TO 31-12-2014)

Particulars Amount
By Scrap Value of Machine 140,000

By Contractee 15,000,000

13092000

261840

15,140,000
Illustration 14
The Jai Hind Construction Company undertook the construction of a building at a contract price of
Rs. 2,00,00,000.
The date of commencement of contract was 1st May 2013.
The following cost information is given for the period ended 31st March 2014 :
1. Direct Materials sent to the site - 5,000 tons @ Rs. 1.50 per kg.
2. Indirect Materials Rs. 6,50,000.
3. Direct Labour - 12,000 Mandays @ Rs. 180 per manday.
4. Indirect Labour charged at 7.5% of Direct Labour.
5. Sub contract charges charged at 15% of Indirect Materials.
6. Direct Materials Returned to stores 20 tons.
7. Direct Materials Lost in an accident 5 tons.
8. Supervision charges paid Rs. 8,000 per month.
9. Administrative overheads incurred Rs. 12,000 per month.
10.Architect Fees charged at 2% of Work Certified.
11. Plant and Machinery installed at site on the date of commencement of contract at a cost of
Rs. 15,00,000. Which is to be depreciated @ 12% p.a. under original cost method.
12.Cash received from contractee Rs. 1,26,00,000 which is equal to 90% of Work Certified.
13.Direct Material at site as on 31st March 2014 - 15 tons.
14.Cost of work done but not certified was Rs. 2,04,500 on 31st March 2014.

You are required to prepare a Contract Account for the period ended 31st March, 2014 in the books
of Jai Hind Construction Company and show what profit or loss should be taken into account for the
period ended 31st March, 2014.
tract price of

14000000 (1500000*12%*(11/12))
165000

14 in the books
account for the
Working Notes :
1. Direct Materials Rate per kg ` 1.50 i.e. rate per ton ` 1,500 (as one ton is equal to 1000 kgs.)
2. Profit = 2/3 x Notional Profit x Cash Received/Work Certified
2/3 x 30,30,000 x 90/100
= Rs. 1818000

Contract Account for the period 1-5-13 to 31-3-14

Particulars Rs. Particulars Rs.

To Direct Materials 7,500,000 By Materials (Return) 30,000

(5,000 x 1,000 x 1.50) (20 x 1,000 x 1.5)
To Indirect Materials 650,000 By Materials (Lost) 7,500
(5 x 1,000 x 1.5)
To Direct Labour (12,000 x 180) 2,160,000 By W.I.P.
To Indirect Labour 162,000 Work Certifed 14,000,000
(21,60,000 x 7.5%) ( 12600,000/90% )
To Sub Contract Charges 97,500 Material at Site 22,500
(6,50,000 x 15%) (15 x 1,000 x 1.5)
To Supervision Charges (8,000 x 11) 88,000 Work unCertifed 204,500
To Administrative Overheads
(12,000 x 11) 132,000
To Architect Fees (1,40,00,000 x 2% 280,000
To depreciation on plant ( 15,00,0 165,000
To Notional Profit c/d 3,030,000

14,264,500 14,264,500
To Profit and Loss A/c 1,818,000 To Notional Profit c/d 3,030,000
To Reserve 1,212,000

3,030,000 3,030,000

0.7 ((2/3)*3030000*(12600000/14000000))
(12600000/14000000)) 1818000
Illustration 45
Mr. Vivek undertook a contract for the construction of building on 1st January, 2013, the contract
price being Rs. 15,00,000.
The following details are available for the year 2013 :
Rs.
Materials purchased 2,40,000
Materials issued from stores 3,00,000
Labour employed on site 90,000
Plant installed on site 1,20,000
Direct Expenses 60,000
Proportionate establishment charges 15,000
Cash received (80% of work certified) 6,00,000
Work un-certified 1,50,000
Materials returned to stores 15,000
Materials in hand at the end 6,000
Wages outstanding 18,000
Direct expenses accrued 24,000

Prepare the Contract Account and show the amount that would appear in the Balance Sheet. A part
of plant costing Rs. 20,000 was stolen at the beginning of the year and the Insurance Co. paid
Rs. 12,000. Plant is depreciated @ 20% p.a.
the contract

2,40,000
3,00,000
90,000
1,20,000
60,000
15,000
6,00,000
1,50,000
15,000
6,000
18,000
24,000

e Sheet. A part
 Contract Account

To Direct Materials 240,000 By Materials (Return)

To Materials Issued from stores 300,000 By Plant Stolen (Lost)

To Direct Labour employed on site 90,000 By W.I.P.

Add: Wages Outstanding 18,000 108,000 Material at Site
Plant at Site
To Plant Installed on site 120,000 Work Certifed
To Direct Expenses 60,000 Work Uncertifed
Add: Accrued 24,000 84,000

To Establishment Charges 15,000

To Notional Profit c/d 154,000

1,021,000
To Profit and Loss A/c 82,133 To Notional Profit c/d
To Reserve 71,867

154,000

Balancesheet
Liabilities Rs. Assets

Profit &Loss A/c W.I.P.

Profit on Contract 82133 Material at Site
Less: Loss on Stolen Plant 8000 74,133 Plant at Site
Work Certifed
Outstanding Wages 18,000 Work Uncertifed
Outstanding Direct Expenses 24,000
Less: Reserve
Cost of Contract
Less: Cash Received
 Working Notes :
(1) Written Down Value of the Plant at Site :
15,000 Plant installed at Site
Less : Stolen at the beginning of the Year
20,000 Plant at Site at the end of the Year at Cost
Less : Depreciation @ 20% p.a. (` 1,00,000 x 20%)
WDV of the Plant at Site at the end of the Year
6000 (2) Calculation of amount of Profit taken to Profit and Loss Account :
80,000 Contract Price =
750,000 Work Certified = 100/80 x Rs. 600,000
150,000 % of Work Completed = 50%
Hence ratio applied = 2/3
Cash Received =

So Profit credit to Profit and Loss A/c =

2/3 x Notional Profit x cash Received/Work Certified
2/3 x 154000 x 600000/750000
1,021,000
154,000 (3) Insurance claim received is credited to the Costing P & L A/c (and no
stolen plant "installed" on site is presumed to be out of common plant.

154,000

Rs.

6000
80,000
750,000
150,000
986,000
71,867
914,133
600,000
314,133
 120,000
20,000
100,000
20,000
80,000
o Profit and Loss Account :
1,500,000
750,000

600,000

82133

the Costing P & L A/c (and not the Contract A/c. The
d to be out of common plant.
A firm of contractors commenced three contracts viz. A,B,C on 1st April,2012, on 1st October,2012 & 1st January,2013 respec
Particulars Contract A Contract B Contract C
Contract Price 800,000 250,000 250,000
Materials issued 144,000 58,000 20,000
Wages paid 220,000 112,400 14,000
Direct expenses paid 10,400 3,600 1,400
Plant installed 40,000 16,000 12,000
Materials at siteat the year end 8,000 4,000 2,000
Wages Outstanding 6,800 3,600 1,600
Work certified (% of contract price) 50% 64% 14.40%
Cash Received 75% 75% 75%
Work uncertified 12,000 8,000 2,100
Direct expenses prepaid 1,200 400 200
The plants are installed on respective dates of the contracts and depreciation is to be provided at 10% p.a.
Prepare Contract Accounts A,B & C and show the calculation of profit transferred to Profit and Loss Account.

16000*10%*6/12=800
12000*10%*3/12 300
12 & 1st January,2013 respectively. The following particulars about above three contracts are obtained for the year ended 31st March,201

direct expenses( paid - prepiad)

he year ended 31st March,2013.
SOLUTION
Contract Accounts for the year ended 31st March 2013
Particulars A B C Particulars
To Materials issued 144,000 58,000 20,000 By WIP c/d
To Wages (paid + o/s) 226,800 116,000 15,600 - Work certified
To Direct Expenses (paid -
prepaid) 9,200 3,200 1,200 - Work Uncertified
To Plant Installed 40,000 16,000 12,000 - Materials at site
To P & L A/c (Profit) 18,000 - - - Plant at site
To Reserve c/f 18,000 - 3,000 By P & L A/c (Loss)

456,000 193,200 51,800

Working Note:
1) % of Work Certified is 50% for contract A.
PROFIT transf to P&L A/c = 36,000*2/3*75% = Rs. 18000.
2) As there is loss in contract B , whole loss will be transferred to P&L A/c.
3) As the % of work certified is (14.4%) for contract C which is less than 25%, the whole notional profit will be treated as reser
 A B C

400,000 160,000 36,000

12,000 8,000 2,100

8,000 4,000 2,000
36,000 15,200 11,700
- 6,000 -

456,000 193,200 51,800

36000 profit 3000 prof

notional profit will be treated as reserve.

Illustration 24:

Siddesh Construction company has undertaken three contracts during the year and the following particulars are available as o

Contract Contract Contract

A B C
Rs. Rs. Rs.
Contract Price 1,000,000 2,500,000 750,000
Material issued to Contract 165,200 224,500 189,600
Labour 102,800 126,500 175,500
Sub-contract Charges 72,800 65,900 28,500
Supervision charges 12,000 18,000 15,000
Architect fees 10,000 15,000 25,000
Insurance Charges 3,000 6,100 7,400
Work Certified 400,000 500,000 500,000
Work Uncertified 35,000 40,000 25,000
Amount received from contrac 320,000 450,000 375,000
Closing stock of Material 9,000 10,000 20,000

All contracts were commenced during the current year. Total Depreciation on plants amounted to
11,200 and allocate the same to all contracts in the ratio of work certified.

Prepare Contract Accounts. Show the calculation of profit transferred to Profit and Loss Account.
ng particulars are available as on 31-12-2014.
Solution 24:

Contract Account

Particulars Contract AContract BContract CParticulars Contract AContract BContract C

To Materials 165,200 224,500 189,600 By Work in progress
To Labour 102,800 126,500 175,500 -Certified 400,000 500,000 500,000
To Sub Contract 72,800 65,900 28,500 -Uncertified 35,000 40,000 25,000
To Supervision 12,000 18,000 15,000 -Material at Site 9,000 10,000 20,000
To Architect Fees 10,000 15,000 25,000
To Insurance 3,000 6,100 7,400
To Depreciation 3,200 4,000 4,000
369,000 460,000 445,000
To Notional Proft c/f 75,000 90,000 100,000 - - -
444,000 550,000 545,000 By Notional Profit 444,000 550,000 545,000
To Profit & Loss A/c 20,000 - 50,000 75,000 90,000 100,000
To Provision for Conti 55,000 90,000 50,000 - - -
75,000 90,000 100,000 75,000 90,000 100,000

Working Note:

(1) Profit Transferred to Profit & Loss A/C :

Particulars Contract AContract BContract C

A. Contract Price 1,000,000 2,500,000 750,000

B. Work Certified 400,000 500,000 500,000

C. % of Work complete 40% 20% 66.67%

=1/3 X =2/3 X
Notional Notional
Profit X Profit X
Cash/ Cash/
Work Work
D. Ratio of Applied Certified Certified

= 1/3 X =2/3 X
75000 X 100000 X
320000/4 375000/
00000 500000

= 20,000 Nil = 50,000

2. Depreciation Rs. 11,200 allocated to A:B:C :: 4:5:5

Contract C
Illustration 46:

The following trial balance was extracted on 31-12-2013 :

Trial Balance

Particulars
Land and Building
Bank Balance
Contract A/c:
Material
Plant
Wages
Expenses

The contract price is ` 5,00,000. It began on 1st January 2013. Out of the plant and material charged
to the contract, plant costing 4,000 and materials costing 6,000 were destroyed by an accident.

On 31-12-2013 plant costing 10,000 was returned to store, the value of materials on site was
5,000 and the cost of work done but not certified was 10,000. Depreciate plant at 10% p.a. and 2% land and building.

Prepare Contract A/c after taking 2/3 profit on cash basis to profit and loss A/c and balance sheet as on 31-12-2013.
Amount Particulars Amount
64,000 Capital 100,000
18,000 Sundry Creditors 12,000
Cash Received 270,000 300000
100,000 (90% of work certified)
40,000
150,000
10,000 -
382,000 382,000
Solution 46:

Dr. Contract Account For the Year Ended 31-12-2013 Cr.

Particulars Rs. Particulars

To Materials 100,000 By P & L A/c (Loss of Plant)
To Wages 150,000 By P & L A/c (Loss of Material)
To Expenses 10,000 By Plant Returned (10,000 - 10%)
To Plant 40,000 By Work-in-progress
To Notional Profit c/d 57,400 -Material at site 5,000
- Plant at Site 23,400
- Work Certified 3,00,000
(2,70,000 X 90/100)
0 - Work Uncertified 10,000
357,400

To P & L A/c (57,400 x 2/3 x 90%) 34,440 By Notional Profit b/d

To Work-in-progress
(Profit Reserved) 22,960
57,400

Balance Sheet as on 31-12-2013

Particulars Rs. Particulars
Capital 100,000 Land & Building 64,0000
Profit & Loss A/c 23,160 Less: Depreciation (1,280)
Sundry Creditors 12,000
Work-in-progress 3,38,400
Less: Cash Received 2,70,000
68,400
Less: Reserves 22,960
Plant at Stores (Returned WDV)
Bank
0
135,160

Profit & Loss Account For the Year Ended 31-12-2013

Particulars Rs. Particulars
To Contract By Contract
- Material Lost 4,000
- Plant Lost 6,000

To Depreciation 1,280
(Building)

To Balance c/d to B/S 23,160

0
 34,440

Working Note: Plant at site

As per TB 40,000
Less:
Lost 4,000
Returned 10,000 14,000
26,000
Depreciation @ 10% 2,600
23,400
Rs.
4,000
6,000
9,000

338,400
357,400

57,400

0
57,400

Rs.

62,720

45,440
9,000
18,000
-
135,160

Rs.
34,440

-
34,440
Jai hind construction limited obtained the contract to construct a housing complex for RS.300
lakh. The contractee
The work agreedon
was commenced to1pay
st 90% of
august theand
2010 workcompleted
certified immediately
on 31st marchupon theA receipt
2012. machineof
costing RS.30, 00,000 was specially bought for use on contract and it would fetch RS.3, 00,000

3/31/2011
Particulars
RS
Monetary Information :
Wages 1,050,000
Indirect Materials 1,830,000
Direct Expenses 395,000
Office Expenses 579,000
Price per ton of Steel 42,000
Price per Brick 8
Scrapped Value of Bricks -
Work Certified (Cumulative) 12,000,000
Work unCertified 500,000
Quantitative Information :
Steel - Purchased (Ton) 105
Returned (Ton) 4
Lost in Accident (Ton) -
Sold (Ton) -
Bricks - Purchased Nos. 120,000
Returned Nos. 3,000
Lost in Accident Nos. 1,500

Prepare contract accounts for the year ended 31-3-2011 and 31-3-2012.
 g complex for RS.300
ly
rchupon theA receipt
2012. machineof
uld fetch RS.3, 00,000

3/31/2012
RS

1,980,000
3,140,000
680,000
864,000
44,000
9
32,000
30,000,000
-

120
3
5
3
150,000
2,000
-
 Jai Hind Construction Ltd.
Contract A/c for the year ended 31st March, 20
Particulars Amount Amount
To Materials :
-Steel Purchases 4,410,000
Less: Returns -168,000 4,242,000
-Bricks Purchases 960,000
Less: Returns 24,000 936,000
To Wages 1,050,000
To Direct Expenses 395,000
To Indirect Expenses 1,830,000
To Office Expenses 579,000
To Depreciation on
Machinery 1,080,000
To Notional Profit : 2,400,000
P & L A/c 720,000
Reserve 1,680,000
12,512,000

Contract A/c for the year ended 31st March, 20

Particulars Amount Amount
To WIP
Work Certified 12,000,000
Work Uncertified 500,000
To Materials
-Steel Purchases 5,280,000
Less: Returns -132,000 5,148,000
-Bricks Purchases 1,350,000
Less: Returns -18,000
1,332,000
Less: Scrap -32,000 1,300,000
To Wages 1,980,000
To Direct Expenses 680,000
To Indirect Materials 3,140,000
To Office Expenses 864,000
To Depreciation on
1,620,000
Machinery
To Profit & Loss A/c 4,800,000
32,032,000

1. 2011
Material Steel :
Purchases 105 tons @ 42,000
Returned 4 tons @ 42,200
Bricks :
Purchased 1,20,000 bricks @ 8

Returned 3,000 bricks @ 8

Loss in Accident 1,500 bricks @ 8

2012
Steel :
Purchased 120 tons @ 44,000

Returned 3 tons @ 44,000

Loss in Accident 5 tons @ ` 44,000
Sold 3 tons @ ` 44,000
Bricks :
Purchased 1,50,000 @ ` 9
Returned 2,000 @ ` 9

2. Depreciation on Machine
Cost - Scrap Value = 30,00,000 - 3,00,000
Life 20 Months

Depreciation for :2011 1-8-2010 to 31-3-2011 (8 months )=1,35,000 x 8 = 10,80,0

For 2012 1-4-2011 to 31-3-2012(12 months) =1,35,000 x 12 =16,20,000

3. Profit (31-3-2011) = 1/3*NP*CR/WC

= 1/3*2400000*90/100
= 720000
ai Hind Construction Ltd.
or the year ended 31st March, 2011
Particulars Amount Amount
By Loss by Accident 12,000
By WIP :
Work Certified 12,000,000
Work Uncertified 500,000 12,500,000 %of work certified to contract pr

= 40%

(12000000/30000000)*100

12,512,000

or the year ended 31st March, 2012

Particulars Amount Amount
By WIP :
Reserve 1,680,000
By Loss by Accident 220,000
By Sale 132,000
By Contractee's A/c 30,000,000

32,032,000
 4,410,000
168,000

960,000

24,000

12,000

5,280,000

132,000
220,000
132,000

1,350,000
18,000

= 27,00,000 = 1,35,000 p.m.

20

months )=1,35,000 x 8 = 10,80,000

5,000 x 12 =16,20,000
certified to contract price

0/30000000)*100
Q.17

Rex Limited commenced a Contract on 1-7-2013. The total contract price was ₹ 5,00,000 but Rex
Limited accepted the same for ₹ 4,50,000. It was decided to estimate the total profit and to take to
the credit of profit & loss account that proportion of estimated profit on cash basis which the work
completed and certified borne to the total contract. Actual expenditure till 31-12-2013 and estimated
expenditure in 2014 are given below:

The plant is subjected to annual depreciation @ 20% of original cost. The contract is likely to be
completed on 30-9-2014.
You are required to prepare the contract account for the year ended 31-12-2013. Working should be
clearly given.
It is the policy of the company to charge depreciation on time basis.
 IN THE BOOKS OF REX LIMITED
Contract Account (for Year Ended 31-12-2013)
Dr.
Particulars Rs. Particulars
To Materials 75,000.00 By Plant Returned to Stores
To Labour 55,000.00 (See Note 2)
To Miscellaneous expenses 20,000.00 By Work-in-Progress c/f:
To Plant 40,000.00 - Work Certified 2,00,000
- Work Uncertified 7,500
- Materials on hand 5,000
To Notional Profit c/d 58,500.00 - Plant at site 27,000
(See Note 3)

248,500.00
To Profit & Loss Account (See Note) 26,400.00 By Notional Profit b/d
To Work-in-Progress c/f 32,100.00

58,500.00

Memorandum Contract Account (1-7-2013 to 30-9-2014)

Dr.
Particulars Rs. Particulars
To Materials (75,000 + 1,30,000) 205,000.00 By Plant Returned to Stores
To Labour (55,000 + 60,000) 115,000.00 By Contractee’s Account
To Miscellaneous Expenses 55,500.00 (Full Price)
(20000+35500) By Plant at site (See Note 5)
To Plant 40,000.00
To Estimated Profit 66,000.00
481,500.00

(1) Profit taken to Profit and Loss Account :

Profit credited to Profit & Loss A/c = Estimated Profit x Cash Received/Work Certified*Work Certified/Total
66000*1,80,000/2,00,000*2,00,000/4,50,000
=26000
Balance taken on Reserve (58,500 - 26,400) = 32,100

(2) Plant Returned to Stores on 31-12-2013:

Cost 10,000 10,000.00
Less : Depreciation @ 20% for 6 months 1,000.00
9,000.00

(3) Plant at site as on 31-12-2013 :

Cost 40,000.00
Less: Returned 10,000.00
30,000.00
Less: Depreciation @ 20% for 6 months 3,000 3,000.00
27,000.00

(4) Plant Returned to Stores on 30-9-2014 :

Cost 25,000.00
Less: Depreciation (25,000 @ 20% for 15 months) 6,250.00
18,750.00

(5) Plant at site as on 30-9-2014 :

Cost (30,000 -25,000) 5,000.00
Less: Depreciation (5,000 @ 20% for 15 months) 1,250.00
3,750.00
 Cr.
Rs.
9,000.00

239,500.00

248,500.00
58,500.00

58,500.00

Cr.
Rs.
27,750.00
450,000.00

3,750.00

481,500.00

ed*Work Certified/Total Contract

Q.20
DSK Ltd. commenced at contract on 1st April, 2015. The total Contract Price was for Rs. 35,00,000 and it is likely to be complet
December, 2016. The actual expenditure upto 31st March, 2016 and subsequent estimated expenditure upto 31st December,
given below :

The plant is subject to annual depreciation @ 20%p.a. on original cost. It was decided that the profit to be taken credit for sho
portion of estimated net profit to be realised on completion of the contract which the certified value of work as on 31st March
to the total contract price. You are required to prepare Contract Account for the year ended 31st March, 2016 and show your
profit to be credited to the Profit and Loss Account for the year ended 31st March,2016. Calculation should be made to the ne
00 and it is likely to be completed on 31st
enditure upto 31st December, 2016 are

rofit to be taken credit for should be that

alue of work as on 31st March, 2016 bears
t March, 2016 and show your calculation of
tion should be made to the nearest rupee.
Ill 43

The Perfect Construction Company Ltd. has undertaken the construction of a bridge for a value
of
` 45,00,000 subject to a retention of 20% until one year after the certified completion of the
contract.
The following information is available for the year ended 31st March 2014 :

Particulars Amt

Labour on site 1,155,000

Material sent to site 1,230,000
Material from stores 235,500
Plant hire 34,800
Direct expenses 63,000
General overheads allocated to the contract 118,200
Material at site (31-3-2014) 22,800
Wages accrued on 31-3-2014 28,800
Direct expenses accrued on 31-3-2014 5,100
Work not yet certified at cost 43,500
Value of work certified 3,900,000
Cash received on account 3,120,000

You are required to prepare :

(i) Contract account
(ii) Contractee's account and
(iii) Show relevant items in the Balance Sheet.
 Contact Account

Particulars Amount Particulars Amount

To Direct Materials 1,230,000 By Work-in-Progress :

To Labour on Site 1,155,000 ·  Work Certified 39,00,000
To Material from Store 235,500 ·  Work Uncertified 43500
To Plant Hire 34,800 ·  Materials at site 22800 3,966,300
To Direct Expenses 63,000
To General Overhead 118,200
To Wages Accrued 28,800
To Direct Expenses Accrued 5,100
To Notional Profit c/d 1,095,900

3,966,300 3,966,300
To P & L A/c 584,480 By Notional Profit b/d 1,095,900
To W-I-P (Profit Reserved) 511,420

1,095,900 1,095,900

Contractee Account
Particulars Amount Particulars Amount
To Balance c/d 3,120,000 By Bank 3,120,000
3,120,000 3,120,000

Balance Sheet
Liabilities Rs. Assets Rs.
Profit & Loss A/c 584,480 By Work-in-Progress :
Accrued Wages 28,800 ·  Work Certified 39,00,000
Accrued Direct Expenses 5,100 ·  Work Uncertified 43500
·  Materials at site 22800
Less: Cash Received 31,20,000

Less: Reserves 5,11,420 334,880

 Contact Account
Particulars Amount Particulars Amount
To Direct Materials 1,230,000 By Work-in-Progress :
To Labour on Site 1,155,000 ·  Work Certified 39,00,000
To Material from Store 235,500 ·  Work Uncertified 43500
To Plant Hire 34,800 ·  Materials at site 22800 3,966,300
To Direct Expenses 63,000
To General Overhead 118,200
To Wages Accrued 28,800
To Direct Expenses Accrued 5,100
To Notional Profit c/d 1,095,900

3,966,300 3,966,300
To P & L A/c 584,480 By Notional Profit b/d 1,095,900
To W-I-P (Profit Reserved) 511,420

1,095,900 1,095,900

Contractee Account
Particulars Amount Particulars Amount
To Balance c/d 3,120,000 By Bank 3,120,000
3,120,000 3,120,000

Balance Sheet
Liabilities Rs. Assets Rs.
Profit & Loss A/c 584,480 By Work-in-Progress :
Accrued Wages 28,800 ·  Work Certified 39,00,000
Accrued Direct Expenses 5,100 ·  Work Uncertified 43500
·  Materials at site 22800
Less: Cash Received 31,20,000

Less: Reserves 5,11,420 334,880

Illustration:

Bal Ram contractors undertook a contract for ` 15,00,000 on 1st July, 2012. The contract was
completed on 31st March, 2014. The contractor prepares his accounts on 31st March. The details of

the contract are :

From 1-7-12 to From 1-4-13 to

Particulars Period Period
31-3-13 31-3-14
Material issued 152,000 330,000
Direct wages 125,000 465,000
Direct Expenses 30,000 45,000
Materials returned to stores 22,000 15,000
Material at site 20,000 8,000
Uncertified work 48,000 —
Office overheads 23,000 66,000
Material lost by fire — 5,000
Work certified 300,000 1,500,000
Plant issued 300,000 150,000

Provide depreciation @ 20% p.a. on plant. Prepare Contract Accounts for the years ended 31-3-2013
and 31-3-2014.
34/aa-130
BAL RAM CONTRACTORS
Contract Account (From 1-7-2012 to 31-3-2013)

Particulars Amount Particulars Amount

To Material issued 152,000

By Material returned 22,000
To Direct wages 125,000 By Work-in-Progress :

To Direct Expenses 30,000 ·  Work Certified 3,00,000

To Materials returned to stores 22,000 ·  Work Uncertified 48,000
To Office overheads 23,000 ·  Materials at site 20000 368,000
To Depreciation on Plant 45,000
(3,00,000 x 20% x 9/12)
To Work-in-Progress c/d (Reserve) 15,000

390,000 390,000

Notes :
(1) Profit taken to Reserve : As the work certified (` 3,00,000) is only 20% of the total contract price
of ` 15,00,000. entire profit is taken to Reserves.
(2) Depreciation taken @ 20% on ` 3,00,000 for 9 months.

Contract Account (From 1-4-2013 to 31-3-2014)

Particulars Amount Particulars Amount
By Work-in-Progress : By Work-in-Progress b/d 15,000
·  Work Certified 300,000 (Reserve b/d)
·  Work Uncertified 48,000 By Material returned 15000
·  Materials at site 20000 By Materials at site 8000
To Material issued 330,000 By Material lost by fire 5,000
To Direct wages 465,000 By Contractee’s A/c 1,500,000
To Direct Expenses 45,000 (Full Price Due)
To Office overheads 66,000
To Depreciation on Plant 81,000
(Note___)
To Profit & Loss A/c 188,000
390,000 390,000

Note :
Depreciation : Depreciation is taken on WDV basis as follows:
(a) Opening balance (3,00,000 - 45,000) = 2,55,000 x 20% = ` 51,000.
(b) New Plant Issued 1,50,000 x 20% = ` 30,000.
Total Depreciation ` 51,000 + ` 30,000 = ` 81,000
BAL RAM CONTRACTORS
Contract Account (From 1-7-2012 to 31-3-2013)
Particulars Amount Particulars Amount
To Material issued 152,000 By Material returned 22,000
To Direct wages 125,000 By Work-in-Progress :
To Direct Expenses 30,000 ·  Work Certified 3,00,000
To Materials returned to stores 22,000 ·  Work Uncertified 48,000
To Office overheads 23,000 ·  Materials at site 20000 368,000
To Depreciation on Plant 45,000
(3,00,000 x 20% x 9/12)
To Work-in-Progress c/d (Reserve) 15,000

390,000 390,000

Notes :
(1) Profit taken to Reserve : As the work certified (` 3,00,000) is only 20% of the total contract price
of ` 15,00,000. entire profit is taken to Reserves.
(2) Depreciation taken @ 20% on ` 3,00,000 for 9 months.

Contract Account (From 1-4-2013 to 31-3-2014)

Particulars Amount Particulars Amount
By Work-in-Progress : By Work-in-Progress b/d 15,000
·  Work Certified 300,000 (Reserve b/d)
·  Work Uncertified 48,000 By Material returned 15000
·  Materials at site 20000 By Materials at site 8000
To Material issued 330,000 By Material lost by fire 5,000
To Direct wages 465,000 By Contractee’s A/c 1,500,000
To Direct Expenses 45,000 (Full Price Due)
To Office overheads 66,000
To Depreciation on Plant 81,000
(3,00,000 x 20% x 9/12)
To Profit & Loss A/c 188,000
390,000 390,000

Note :
Depreciation : Depreciation is taken on WDV basis as follows:
(a) Opening balance (3,00,000 - 45,000) = 2,55,000 x 20% = ` 51,000.
(b) New Plant Issued 1,50,000 x 20% = ` 30,000.
Total Depreciation ` 51,000 + ` 30,000 = ` 81,000