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14. CONTRACT COSTING
SOLUTIONS TO ASSIGNNT PROBLEMS
Problem No.1
Contract A/c
Particulars Amount Particulars Amount
To Materials A/c 5,000 By Work - in - Progress
Work Certified 10,000
Work Uncertified 3,800 13,800
To Direct labour A/c 4,600 By closing stock of raw Materials 950
To indirect labour A/c 640
To overhead expenses 1,950
To Depreciation on plant 125
To Notional Profit 2435
14,750 14,750
To P & L A/c 1,623 By Notional Profit 2,435
To Reserve A/c 812
2,435 2,435

P & L A/c for period …

Particulars Amount Particulars Amount
To Net Profit 1,623 By Contract A/c 1,623
1,623 1,623

Balance Sheet
Particulars Amount Particulars Amount
Plant 12,000
Less: Depreciation 125 11,875
Net Profit 1,623 Closing Stock of raw Materials 950
Work - in - Progress 13,800
(-) Reserve 812 12,988

Profit transfer to P & L A/c = Notional Profit X 2/3

= 2,435 X 2/3 = 1,623.

Problem No.2
st
1. Contract Account for the year ended 31 March

Particulars Rs. Rs. Particulars Rs.

To Materials 35,82,600 By Work in Progress A/c
To Direct Wages Paid 32,62,700 Work Certified 79,90,000
 Rs. 71,91,000 
 
 90% 
Add: Payable 78,120 33,40,820 Work Uncertified 3,17,000
To Direct Expenses Paid 1,68,000
Add: Payable 9,310 1,77,310 By Materials – returned to 14,840
Stores

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 No.1 for CA/CWA & MEC/CEC MASTER MINDS
To Planning and Estimation 3,50,000 By Materials at Site 85,400
To Cost of Plant installed at 7,00,000 By WDV of Plant site 6,16,000
site
To Establishment Expenses 2,03,000
To HO Expenses – 2,50,000
Apportioned
To Notional Profit – balancing 4,19,510
figure
Total 90,23,240 Total 90,23,240
To P & L A/c – Profit transfer – 2,51,706 By Notional Profit b/d 4,19,510
See Note b
To Reserve Profit c/d – 1,67,804
balancing figure
Total 4,19,510 Total 4,19,510
To Work-in-Progress b/d 83,07,000 By Reserve Profit b/d 1,67,804
(WC+WUC)
To WDV of Plant at site b/d 6,16,000
To Materials at Site b/d 85,400

Notes:
Work Certified Rs. 79,90,000
a. Percentage of Completion = = = 87.80%
Contract Pr ice Rs. 91,00,000
2 Cash Re ceived
b. So, Profit trfd to P&L A/c = x Notional Pr ofit x
3 Work Certified
2 Rs. 71,91,800
= x Rs. 4,19,510 x = Rs. 2,51,708
3 Rs. 79,90,000

st
2. Balance Sheet as on 31 March (Abstract)
Liabilities Rs. Assets Rs.
Profit and Loss A/c 2,51,706 Fixed Assets:
Current Assets:
Contract Work-in-Progress
Work Certified 79,90,000
Work Uncertified 3,17,000
Plant (WDV) at Site (See Note a) 6,16,000
Materials at Site 85,400
Sub-Total 90,08,400
Current Liabilities: Less: Reserve Profit (or Profit-in- (1,67,804)
Reserve)
Wages Accrued 78,120 Net – Total 88,40,596
Direct Expenses Accured 9,310 Less: Contractee’s Account balance (71,91,000)
Net Value of Contract WIP 16,49,596

Note:
a. WDV ofPlant at site can also be shown under the heading “Fixed Assets”.
b. The above is only an extract of the Balance Sheet. Hence, Totals are not drawn up.

Problem No.3

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Contract A/c for the year ended 31 December

Particulars Rs. Particulars Rs.

To Materials (Issued Rs. 58,000 – 53,000 By Contractee’s A/c (Contract 1,75,000
Returns Rs. 5,000) completed)
To Wages (given) 75,000
To Direct Charges (given) 12,000
To Establishment Charges (given) 8,000
To Depreciation on Plant (20% of 6,000
Rs.30,000)
To P&L A/c – Profit transferred (bal.fig) 21,000
Total 1,75,000 Total 1,75,000

Note: Profit of Rs.21,000 is to be entirely taken to P & L Account, since contract is fully complete and all
cash is received.

Problem No. 4
In the books of contractor
Dr. Contract A/c for the year ended 31.12.1988 Cr.
House House House House
Particulars Particulars
A B A B
To Opening Work in Progress 14,000 - By Materials at site 400 540
To Materials 23,000 16,600 By Work in
To Wages 20,000 14,000 progress:
To Electrical Fittings 1,400 300 - Work certified - 36,000
To Road making charges 8,000 - (24,000 x 2/3)
To Establishment charges 7,200 5,040 - Work uncertified - 2,500
(12,240-20:14)
To depreciation on plant 1,000 400 By Contractee A/c 60,000 -
(12,000×10 (6,000 ×
% ×10/12) 10%×8/12) By P& L A/c (Loss) 14,200 -
To National Profit - 2,700
39,040 39,040
To P & L A/c (Profit) (W.N-1) - 1,200 By National Profit 2,700
To Work in Progress reserve - 1,500
74,600 2,700 74,600 2,700

W.N-1: Profit to be taken to Profit & Loss A/c

National Profit = 2,700
Percentage of work completed = 36,000/40,000 = 90%
Profit to be taken to P & L A/c = 2,700 × 2/3 × 2/3 = 1,300
Given Cash Received / Work certified = 2/3 = 24,000 / Work Certified
∴ Work Certified = 24,000 × 3/2 = 36,000

Problem No.5
Brock Construction Ltd. Contract A/c
(November 1, 2003 to Oct. 31, 2004)

Particulars Amount Amount

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 No.1 for CA/CWA & MEC/CEC MASTER MINDS
(Rs.) (Rs.)
To Materials issued 6,75,000 By Plant returned to 75,000
store on
31/03/04 at cost
Less: Dep (1/3) 10,417 64,583
To Labour paid 4,50,000 By WIP
Prepaid 25,000 4,25,000 Certified 20,00,000
To Plant Purchased 3,75,000 Uncertified 75,000 20,75,000
To Expenses paid 2,00,000 By Plant at site 3,00,000
31/10/04 at Cost
To Outstanding 50,000 2,50,000 Less: Dep (1/3) 1,00,000 2,00,000
To Notional profit 6,89,583 By Materials at site 75,000
c/d
24,14,583 24,14,583
To P/L A/c 3,34,305 × 1,48,580 By Notional Profit 6,89,583
(17,50,000 / b/d
20,00,000)
× (20,00,000 /
39,37,500)
To Work-in-progress 5,41,003
(Profit in reserve)
6,89,583 6,89,583

Brock Construction Ltd. Contract A/c (November 1, 2003 to March 31, 2005)
(For computing estimated profit)

Amount Amount
Particulars Particulars
(Rs.) (Rs.)
To Material issued 19,12,500 By Material at site 37,500
(6,75,000+12,37,500)
To Labour (paid & 10,15,000 By Plant returned to 64,583
outstanding) stores on 31/3/04
(4,25,000+5,87,500+2,500)
To Plant purchased 3,75,000 By Plant returned to 1,72,222
stores on 31/3/05

To Expenses 5,75,000 Cost

(2,50,000 + 3,25,000) 3,00,000

To Estimated profit 3,34,305 Less: Dep.

1,00,000

Less: 5 month Dep. 27,778 27,778

By Contractee A/c 39,37,500
42,11,805 42,11,805

Problem No.6
In the books of Rex Ltd.
Dr. Contract A/c for the year ended 31-12-1988 Cr.
Particulars Amount Particulars Amount
To Materials 75,000 By Materials at site 5,000

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To Labour 55,000 By Work-in-progress
To Miscellaneous expenses 20,000 Work certified 2,00,000
To Depreciation on plant 4,000 Work uncertified 7,500 2,07,500
(
40 ,000 × 20% × 6
12
)
To National profit c/d 58,500
2,12,500 2,12,500
To Costing Profit & Loss A/c 26,400 By National profit b /d 58,500
To WIP reserve 32,100
58,500 58,500

W.N-1: Statement showing calculation of cost to date, estimated cost to be incurred, total cost

Particulars Cost to date (6 m) Estimated cost to be incurred (9m) Total cost

Materials 75,000 1,30,000 2,05,000
Labour 55,000 60,000 1,15,000
Miscellaneous Expenses 20,000 35,500 55,500
Less: Closing Stock 5,000 - 5,000
Add: Opening Stock - 5,000 5,000
Add: Depreciation 4,000 4,500 8,500
(40,000 x 20% x (30,000 x 20% 9/12)
6/12)
Total 1,49,000 2,35,000 3,84,000

W.N-2: Calculation of estimated profit on completion of contract

Particulars Amount
Contract Price 4,50,000
Less: Cost incurred to date (W.N-1) 1,49,000
Less: Estimated cost to be incurred (W.N-1) 2,35,000
Estimated Profit 66,000
Profit to be taken to Profit & Loss A/c: 26,400
cash received 1,80,000
Estimated Profit × = 66,000 ×
contract price 4,50,000

cost incurred to date cash received

Note: Alternative formula, Estimated Profit × ×
estimated total cost work certified
Problem No.7
Dr. Contract Account for the year ended 31st March, 2002 Cr.
Rs. ‘000 Rs. ‘000
To Materials issued to site 5,000 By Materials at site 1,800
To Direct wages 3,800 By Materials returned 100
To Wages accrued 110 By Cost of contract 8,780
To Plant hire 700
To Site Office Costs 270
To Direct expenses 500
To Depreciation of special plant 300
10,680 10,680

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 No.1 for CA/CWA & MEC/CEC MASTER MINDS
To Cost of contract 8,780
To Profit & Loss A/c 1,200
(Refer to working note 2)
To Work-in-progress c/d(Profit in 20
reserve)
10,000 10,000

Working notes:
Cost of work certified 100 lacs
1. Percentage of contract completion = x100 = x100 = 92.59%
Value of the Contract 108 lacs

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.
Cash received Work certified
Profit to be taken to P & L A/c = Budged/Estimated Profit x x
Work certified Contract price
7,200 10,000 7,200
= 1,800 x x = 1,800 x = Rs. 1,200
10,000 10,800 10,800

Problem No.8

1. Percentage of Completion Work Certified Rs. 27,50,000 = 84.62%

2. Current Year Profit
3. Estimated Total Profit (ETP)
4. Profit to be transferred to P & L
= =
Contract Pr ice Rs. 32,50,000
= Income till date (i.e. WC + WUC) = Rs. 6,75,000
less Expenditure till date
= (Rs. 27,50,000 + Rs. 1,75,000) – Rs.
22,50,000
= Contract Price less Estimated Total = Rs. 7,50,000
Costs
= Rs. 32,50,000 – (Rs. 22,50,000 +
Rs. 2,50,000)
= Least of the following (a) to (f) = Rs. 3,47,727

Work Certified Work Certified Rs. 27,50,000

a. Estimated Total Profit x = = Rs. 7,50,000 x Rs. 6,34,615
Contract Pr ice Contract Pr ice Rs. 32,50,000

Work Certified Cash Re ceived

b. Estimated Total Profit x x
Contract Pr ice Work Certified
Rs. 27,50,000 Rs. 21,25,000
= Rs. 7,50,000 x x = Rs.4,90,385
Rs. 32,50,000 Rs. 27,50,000

Cost till date Rs. 22,50,000

c. Estimated Total Profit x = Rs. 7,50,000 x = Rs. 6,75,000
Estimated Total Costs 25,00,000

Cost till date Cash Re ceived

d. Estimated Total Profit x x
Estimated Total Costs Work Certified
22,50,000 Rs. 21,25,000
= 7,50,000 x x = Rs. 5,21,591
25,00,000 Rs. 27,50,000

Work Certified Rs. 27,50,000

e. Estimated Total Profit x = Rs.6,75,000 x = Rs.5,71,154
Contract Pr ice Rs. 32,50,000

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2 Cash Re ceived 2 Rs. 21,25,000
x Notional Pr ofit x = x Rs. 6,75,000 x = Rs.3,47,727
3 Work Certified 3 Rs. 27,50,000

Problem No. 9
Calculation of claim under escalation clause
Standard Deviation in Escalation
Material Contract Price Actual Price
Quantity price claim
A 500 50 45 (5.00) (2500)
B 1000 30 35 5.00 5,000
C 20 1000 1010 10.00 200
Claim for Materials 2,700
Standard Deviation in Escalation
Labour Contract Rate Actual Rate
hours price claim
X 4,800 2.00 2.25 0.25 1,200
Y 2,400 1.00 1.50 0.50 1,200
Z 9,600 1.50 1.50 0 -
Claim for Labour 2,400
Total claim under Escalation clause = 2,700 + 2,400 5,100
Note: Actual Quantity and Actual Hours need not be considered.

THE END

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