Unit

Contract Costing
Practical Problems

◼ Brief Answer Questions

1. Work certified ……………….Rs. 5,00,000
Retention ratio ……………… 20%
Required: Cash received [Ans: 4,00,000]
Solution:
Cash received = (100-20)% of work certified = 80% of 5,00,000 = Rs. 4,00,000
2. Cash received ………………. Rs. 12,00,000
Retention ratio ………………. 20%
Required: Work Certified [Ans: 15,00,000]
Solution:
Cash received = (100-20)% of work certified
80
or, 12,00,000 = 100 ×Work certified
100
or, Wc = 12,00,000× 80 = Rs. 15,00,000
3. The following expenditure was incurred on a contract of Rs. 1,000,000 for the year ending 31st
December, 2021.
Materials Rs. 2,40,000
Wages 325,000
Plant 50,000
Other Expenses 35,000
Work certified was Rs. 600,000 and cash received on account of contract to 31st December 2021
was Rs. 4,50,000. The value of plant at end was Rs. 4,000
Required: Contract Account [Ans: Net Loss Rs 10,000]
Solution:
Contract Account
For the year ended 31st Dec. 2021
To Materials 2,40,000 By plant at end 40,000
To wages 3,25,000 By WIP
To plant 50,000 Work certified 6,00,000
To other expenses 35,000 By net loss 10,000
 6,50,000 6,50,000
4. Cash received on account of 31st December, 2021 was Rs. 15,00,000 being 75% of work certified.
Required: Work certified [Ans: Rs. 2,000,000]
Solution:
100
Wak certified = Cash received ×
75
100
= 1,500,000×
75
= Rs. 20,00,000
5. Following data were extracted from Shan construction company regarding contract No. 201.
Work certified Rs. 400,000
Work uncertified 50,000
Contract price 600,000
Cash received 80% of work certified
National profit 60,000
Required: Profit transferred to Profit and Loss Account [Ans: Rs. 32,000]
Solution:
2 Cash received
P/C/ A/C = Notional profit × ×
3 work certified
2 80
= Rs. 60,000 × ×
3 100
= Rs. 32,000
6. Following information is provided to you:
Work certified Rs. 600,000
Work uncertified Rs. 50,000
Cash received 50% of work certified
WIP Reserve created form National Profit Rs. 40,000.
Required: Work in progress Account [Ans: 6,10,000]
Solution:
WIP Account
To contract A/C 6,50,000 By Contract A/C 40,000
(6,00,000+50,000)
By balance C/D 6,10,000
6,50,000 6,50,000
To balance b/d 6,10,000
7. Following information is provided to you:
Work certified Rs. 8,00,000
Work uncertified Rs. 40,000
Cash received 90% of work certified
WIP Reserve Rs. 50,000
Required: WIP shown in the balance sheet [Ans: Rs. 70,000]
Solution:
Asset Amount
Work in Progress
Work Certified 8,00,000
Work Uncertified 40,000 8,40,000
Less Work in Progress
Reserve 50,000
Cash received 7,20,000 7,70,000

112 COST AND MANAGEMENT ACCOUNTING

 70,000

8. Following information is provided to you.

Work certified Rs. 900,000
Work uncertified Rs. 20,000
Cash received 80% of work certified
Required: Contractee's Account [Ans: Rs. 7,20,000]
Solution:
Contractee's Account
To balance c/d 7,20,000 By bank A/c 7,20,000
By balance B/d 7,20,000
9. Complete estimated profit on a contract from the following particulars:
Total expenditure to date Rs. 2,25,000
Estimated further expenditure to
Complete the contract Rs. 25,000
Contract price Rs. 3,25,000
Work certified Rs. 2,70,000
Cash received 80% of W.C
[Ans: Rs. 75,000]
Solution:
Calculation of Estimated Profit
Details Amount
Total expenditure to date 2,25,000
Add: Estimated further expenditure to complete the contract 25,000
Total estimated cost 2,50,000
Add: estimated profit (Bal Fig) 75,000
Contract price 3,25,000
10. Consider the following information:
Work certified ……………… ………………… Rs. 40,00,000
Work uncertified ………………………………. Rs. 2,00,000
National profit transferred to reserve ………… Rs. 2,50,000
Cash received …………………………………… Rs. 28,00,000
Required:
a. Work in progress account.
b. Work in progress to be shown in the balance sheet.
[Ans: a. 39,50,000; b. 11,50,000]
Solution:
a. Dr. Work in Progress Account Cr.
Particular Rs. Particular Rs.
To contract a/c (40,00,000 + 2,00,000) 42,00,000 By contract a/c (Reserve) 2,50,000
By Balance C/d 39,50,000
42,00,000 42,00,000
b.
Liabilities Rs. Assets Rs.
Work in progress a/c 40,00,000
Work certified 40,00,000
Work uncertified 2,00,000
42,00,000
Less Reserve 2,50,000

CONTRACT COSTING CHAPTER 9 113

 39,50,000
Less Cash received 28,00,000 11,50,000
◼ Short Answer Questions
11. The following information is provided to you:
Contract price Rs. 3,00,000
Work certified 2,00,000
Work Uncertified 4,500
Materials sent to site 80,000
Labour Paid 64,000
Wages outstanding 2,500
Plant Installed at site 15,000
Direct Expenses incurred 3,000
Outstanding Direct Expenses 500
Materials returned to stores 500
Other expenses 4,000
Cash received form contractee 1,50,000
Value of plant at the end 11,000
Materials at the end 2,000
Required: Contract Account
[Ans: National Profit 49,000; PL A/c 24,500]
Solution:
In the books of…..
Contract A/c
Dr. As on ………… Cr.
Particulars Rs. Particulars Rs.
To Materials sent to site 80,000 By Work in progress:
To Labours paid 64,000 Work certified 2,00,000
Add: wages outstanding 2500 66,500 Add: Work uncertified 4500 204,500
To Plant Installed 15,000 By materials returned to stores 500
To Direct expenses 3,000 By Value of plant at the end 11,000
Add: Outstanding direct expenses 500 3,500 By Materials at the end 2,000
To Other expenses incurred 4,000
To Notional profit c/d (balancing figure) 49,000
218,000 2,18,000
To Profit & loss A/c (Refer: Note) 24,500 By Notional profit b/d 49,000
To Reserve (i.e. work in progress A/c) 24,500
49,000 49,000
Working note:
Here,
Work Certifeid
% of work certified (W.C) to Contract Price (CP) =
Contract Price × 100
Rs. 2‚00‚000
= Rs. 3‚00‚000 × 100
= 66.6%
Since, the above calculated % of WC to CP i.e. 66.67% falls in between the category of "50%
to below 100%", then-

114 COST AND MANAGEMENT ACCOUNTING

 2 CR
Amount of profit transferred to Profit and loss A/c = 3 × NP × WC
2 1‚50‚000
= 3 × 49,000 × 2‚00‚000
= Rs. 24,500
And,
Amount transferred to Reserve A/c = Rs. 45,000 – 24,500 = Rs. 24,500 (i.e. balancing figure).
12. Nepal constructions company limited have undertaken the construction of a bridge over
Kamala River. The value of the contract is Rs. 2,500,000 subject to retention of 20% unit one
year offer the certified completion of the contract. The following are the details as shown in
the books as on 31st December, 2016.
Particulars Amount (Rs.)
Materials direct to site 840,000
Maternal from store 162,400
Hire & use of plant 24,000
Direct expenses 46,000
General overhead allocated 74,000
Materials in hand 12,400
Wages accrued 15,000
Wages at site 810,000
Direct expense incurred 4,000
Work uncertified 33,000
Work certified 2,200,000
Cash received (50% of W.C.)
Required: (a) Contract Account (b) WIP Account
[Ans: National Profit 2,70,000]
Solution:
Contract Account
For the year ended 31–12–2016
Particulars Amount Particulars Amount
To materials direct to site 840,000 By Materials in hand 12,400
To materials from store 162,400 By worth in progress
To hire & use of plant 24,000 Work Certified. 2,200,000
Work uncertified 33,000 2,233,000

To direct expenses 460,000

To outstanding 4,000 50,000
To general overhead 74,000
To wages 810,000
To outstanding 15,000 825,000
To national profit e/d 270,000
2,245,400 2,245,400
To P/C A/C 144,000 By national profit b/d 270,000

To Work in Progress (received) 126,000

270,000 270,000

CONTRACT COSTING CHAPTER 9 115

 Wash-in-progress account
To contract account 2,233,000 By contract A/c 126,000
By balance c/d 2,107,000
2,233,000 2,233,000
13. A firm of building contractors began to trade as 1st Jan, 2015. The following was the
expenditure as contract for Rs. 5,000,000
Materials issued to contract 510,000
Plant installed 150,000
Wages incurred 810,000
Other expenses 50,000
Cash received on account to 31st December, 2015 amounted to Rs. 1,280,000 being 80% of
the was certified, of materials and plant charged the to contract, materials which cost Rs.
25,000 and plant which cost Rs. 30,000 were lost on 31st December 2015, plant which cost
Rs. 20,000 were returned to stone. The cost of were done but uncertified was Rs. 10,000 and
materials costing Rs. 23,000 were in hand on site. Depreciation of plant is to be taken into
account at the rate of 15% per annum.
Required: (i) Contract account (ii) Contract's account
(iii) Relevant items in the balance sheet
[Ans: National Profit 2,70,000]
Solution:
Contract Account
For the year ended 31–12–2015
Particular Amount Particulars Amount
To materials issued 510,000 By P/C A/C
To plant 150,000 Plant lost 30,000
To wages 810,000 Mat. lost 25,000 55,000
To other expenses 50,000
To national int c/d 270,000 By plant return 20,000
Less, deprecation 3,000 17,000
By plant at end 100,000
Loss, depreciation 15,000 85,000
Loss material in hand 23,000
By work in progress 1600,000
Work certified 10,000 1,610,000
1,790,000 1,790,000
72,000 By national profit b/d 270,000
To P/C A/C (270‚000×13×100
80
)
WIP (reserve) 198,000
270,000 270,000
Contract's Account
To balance c/d 1,280,000 By bank 1,280,000

116 COST AND MANAGEMENT ACCOUNTING

 Balance sheet
as on 31–12–2015
Liabilities Amount Assets Amount
P/C A/C 72,000 Work in progress
Less: Plant cost (30,000) Work certified 1,600,000
Work uncertified 10,000
1,610,000
Materials lost (25,000) 17,000 Reserve 198,000
1,412,000
Cash received 1,280,000 132,000
Materials at site 23,000
Plant return to store 17,000
Plant at site 85,000
14. The following particulars relating to a contract were provided to you:
Contract price 3,000,000
Materials issued 800,000
Materials returned 20,000
Material at site (31st December, 2016) 110,000
Direct wages 750,000
Direct expenses 330,000
Establishment expenses 125,000
Plant at site (31st December, 2016) 320,000
Was uncertified 160,000
Was certified 2,100,000
Cash received 90% of W.C.
Architect's fees 10,000
Materials transferred to other site 45,000
Plant is deprecated at 20% per annum
Required: (i) Contract account (ii) WIP in balance sheet
[Ans: National Profit 3,40,000]
Solution:
Contract Account
As on 31–12–2016
Particulars Amount Particulars Amount
To materials issued 800,000 By materials return 20,000
To direct wages 750,000 By materials at site 110,000
To direct expenses 330,000 By plant at site 320,000
To establishment expenses 125,000 By WIP
100 400,000 Work certified 2,100,000
(
To plant 320‚000 × 80 ) Work uncertified 160,000
10,000 By materials transfer red to other site
2,260,000
To architect fee
To normal profit c/d 340,000 45,000
2,755,000 2,755,000
2 90 204,000 By notional profit b/d 340,000
(
To P/C A/C 340‚000× ×
3 100 )
To WIP (Reserve) 136,000

CONTRACT COSTING CHAPTER 9 117

 340,000 340,000
Balance Sheet
as on 31–12–2016
W.I.P Amount
Work certified 2,100,000
Work certified 160,000
2,260,000
Less, reserve 136,000
2,124,000
Cash received 1,890,000 234,000
15. The following Trial Balance was expected on 31st December 2016 from the books of Saumya
Co. Pvt. Ltd.
Debit balance Rs. Credit Balance Rs.
Land & building 300,000 Share capital 700,000
Furniture 70,000 P/L Ac (1–1–2016) 50,000
Bank 50,000 Cash received
Contract No. 10% on account
Materials 700,000 Contract No. 101 1,600,000
Direct labour 800,000 Creditors 150,000
Expenses 80,000
Machinery 500,000
2,500,000 2,500,000
Contact No. 101 was began on 1st
Jan, 2016. The contract price is Rs. 2,500,000 and the
customer has so far paid Rs. 1,600,000. Being 80% of wash certified. Walk uncertified is
estimated at Rs. 20,000.
On 31st December 2016, after the above trial balance was extracted, machinery costing Rs.
100,000 was returned to store and materials when at site were valued at Rs. 30,000.
Depreciation is to be charged at 10% and machinery.
Required: (i) Contract account (ii) Balance sheet as on 31–12–2016.
[Ans: National Profit 4,20,000; BS-11,24,000]
Solution:
Construct Account
For the year ended 31st December, 2016
Particular Account Particular Amount
To materials 700,000 By WIP
To direct labour 800,000 Work certified 2,000,000
To expenses 80,000 Work uncertified 20,000 2,020,000
To machinery 500,000 By machinery return 100,000
To notional profit c/d 420,000 Less, depreciation 10,000 90,000
By machinery at site 400,000
Less, depreciation 40,000 360,000
By materials at site 30,000
2,500,000 2,500,000
To P/C A/C 224,000 By national profit 420,000
2 80
(420‚000× ×
3 100 )
To WIP (Reserve) 196,000
420,000 420,000

118 COST AND MANAGEMENT ACCOUNTING

 Balance Sheet
as on 31–12–2016
Share capital 700,000 Land & Building 300,000
P/C A/C 50,000 Furniture 70,000
Profit on contract 224,000 274,000 Bank 50,000
Creditors 150,000 Machinery at site 360,000
Machinery at site 90,000
Materials at site 30,000
WIP:
Work certified 2,000,000
Work uncertified 20,000
Reserve (196,000)
Cash (16,000,000) 224,000
1,124,000 1,124,000
16. The following information is supplied regarding a contract which is incomplete on 31 st
March, 2016.
i.
Cost to date:
Direct materials 360,000
Direct labour 270,000
Other expenses 40,000
Total 670,000
ii. Technical estimates of wall completed to date:
Direct materials 90%
Direct labour 75%
Other expenses 40%
iii. Contract price Rs. 1,000,000
Cash received Rs. 640,000 (80% of W.C.)
Wash certified Rs. 800,000
Required:
(i) Total estimated cost
(ii) Estimated profit on the completion of the contract
(iii) Profit transferred to p/c A/c under different method
[Ans: a. 8,60,000; b. 1,12,000; 89,600; 1,09,070; 87,256]
Solution:
Total estimated cost
Cost to date
Direct materials 360,000
Direct labour 270,000
Other expenses 40,000 670,000
Add: Estimated expenditure:
Direct materials (360‚000 × 1090) 40,000

Direct labour (270‚000 × 2575) 90,000

190,000

CONTRACT COSTING CHAPTER 9 119

 860,000
Other expenses (40‚000 × 6040) 60,000
Total estimated cost
Estimated profit = Contract price – Total estimated profit
= 1,000,000 – 860,000 = Rs. 140,000
Profit transferred to P/C A/C under different methods
Work Certified.
(a) Estimated profit × contract price
800‚000
= 140,000 × 1‚000‚000 = Rs. 112,000
Work Certified cash received
(b) Estimated profit × contruct price × Work Certified
800‚000 80
= 140,000 × 1‚000‚000 × 100 = Rs. 89,600
cost to date
(c) Estimate profit × Total estimated cost
670‚000
= 140,000 × 860‚000 = Rs. 109,070
cost to date cosh received
(d) Estimated profit × Total estimated profit × Work Certified
670‚000 80
= 140,000 × 860‚000 × 100 = Rs. 87,256
17. On 1st January 2016, a contractor under took a contract for the construction of a building.
The constrictor price was agreed at Rs. 800,000. The contractor had made the following
expenditure during the year ended 31st December 2016.
Materials purchased Rs. 80,000
Direct labour Rs. 50,000
Overhead Rs. 20,000
Materials transferred from Rs. 30,000
Other contract Rs. 20,000
Plant purchased Rs. 200,000
Other information:
a. The scrap value of plant is Rs. 40,000 and its life is estimated to be 8 years.
b. Materials on 31st December 2016 Rs. 10,000
c. Cash received from contracted Rs. 180,000 (being 75% of work certified)
d. Materials transferred to other contract Rs. 2,000
e. Materials returned to store Rs. 1,000
f. Cost of work uncertified Rs.7, 000
Required: (a) Contract account
(b) Work-in-progress account
(c) Relevant items in balance sheet
[Ans: National Profit 60,000; WIP 2,02,000]

120 COST AND MANAGEMENT ACCOUNTING

Solution:
Contract Account
For the year ended 31–12–2016
Particulars Amount Particulars Amount
To materials purchases 80,000 By plant at end 200,000
To direct labour 50,000 Less deprecation 20,000 180,000
To overhead 20,000 By materials at end 10,000
To materials transferred from other By WIP
contract 30,000 Work certified 240,000
To plant purchased 200,000 Work uncertified 7,000 247,000
To notional profit c/d 60,000 By materials transferred to other contract 2,000
By materials returned to store 1,000
440,000 440,000
15,000 By notional profit b/d 60,000
To P/C A/C (60‚000 × 13 × 100
75
) 45,000
To balance c/d (WIP reserve)
60,000 60,000
WIP Account
To contract A/C 247,000 By contract A/C 45,000
By balance c/d 202,000
247,000 247,000
To balance b/d 202,000
Balance sheet
As on 31–12–2016
Liabilities Amount Assets Amount
P/L A/C 15,000 WIP:
Work certified 240,000
Work uncertified 7,000
247,000
Less, WIP Res. 45,000
202,000
Less, cash res. 180,000 22,000
Plant at end 18,000
Materials at end 10,000
Material returned to store 1,000

◼ Long Answers Questions

18. The following is the summary of the expenditure on contract for the year ended 31 st
December 2015.
Direct materials 400,000
Direct wages 100,000
Subcontract cost 50,000
Plant 300,000
Other information:
(i) The contract price is Rs. 1,000,000
(ii) Overhead 40% of direct wages

CONTRACT COSTING CHAPTER 9 121

 (iii) Depreciation 20% on plant
(iv) The architect has certified that 4/5 of the contract has been completed by 20th
December.
(v) The following expenses were incurred after work certification, which were included in
above cost.
Maternal Rs. 36,000
Wages Rs. 10,000
Overhead as a percentage of direct wages.
(vi) Materials at site on 31st December, 2015 Rs. 10,000.
(vii) Cash received 80% of wash certified
Required:
(i) Contract account (ii) Wash-in-progress account
[Ans: National Profit 2,10,000]
Solution:
Contract Account
For the year ended 31–12–2015
Particulars Amount Particulars Amount
To direct materials 400,000 By WIP:
To direct wages 100,000 Work certified 800,000
To subcontract cost 50,000 Work uncertified 50,000 850,000
To plant 300,000 By materials at site 10,000
To overhead 40,000 By plant at end 300,000
To notation Less, depreciation 60,000 240,000
Profit c/d 210,000
1,100,000 1,100,000
2 80 112,000 By notional profit b/d 210,000
(
To P/C A/C 210‚000× 3×100 ) 98,000
To WIP reserve
210,000 210,000
Work-in-Progress Account
Particulars Amount (Rs.) Particulars Amount (Rs.)
To contract A/c 850,000 By contract A/c 98,000
By balance c/d 752,000
850,000 850,000
2 cash received
P/C A/C = National profit × 3 × Work certified
3×100
80,000 = Notional profit = 80,000 × 2×80 = Rs. 150,000
19. Janakpur construction company provides you the following information relating to a
contract for the year ended 31st December, 2017.
Materials from suppliers 400,000
Materials from store 50,000
Wages 180,000
Office expenses 43,000
Materials at 31–12–2017 60,000
Plant at 31–12–2017 45,000
During the year, materials costing Rs. 20,000 was sold for Rs. 25,000. Plant costing Rs.
50,000 were returned to store on December 31, 2017. The company's revenue a/c showed

122 COST AND MANAGEMENT ACCOUNTING

 the amount received an account the sum of Rs. 588,000 after deduction of 2% contract tax at
source price was Rs. 1,000,000 and cash received was 80% of work certified. The value of
work uncertified has been estimated to be 10% of work certified. Depreciate plant by 10%
per annum.
Required: Contract account.
[Ans: National Profit- 2,10,000]
Solution:
Contract Account
For the year ended 31–12–2017
Particular Amount Particular Amount
To materials from suppliers 400,000 By materials at end 60,000
To materials from store 50,000 By plant at end 45,000
To wages 180,000 By sale of materials 25,000
To office expenses 43,000 By plant return 50,000
100 Less: Deprecation 5,000 45,000
(
To plant 45‚000 × 90 + 50‚000 ) 100,000 By work in progress
5,000 Work certified 750,000
To gain on sale of materials
2 Work uncertified 75,000 825,000
( )
To contract tax 5‚88‚000× 98 12,000
To national profit c/d 210,000
1,000,000 1,000,000
2 80 112,000 By national profit b/d 210,000
(
To P/C A/C: 210‚000 × 3 × 100 ) 98,000
To balance c/d
210,000 210,000
Working Notes
100
Cash received = 588,000 × 98 = 600,000
100
W.C.  600,000 × 80 = 750,000
20. The following trial balance was extracted on 31st December, 2017 from the books of a
contractor.
Debt balance Amount (Rs.) Credit balance Amount (Rs.)
Land & building 200,000 Share capital 400,000
Plant & machinery 200,000 P/C A/C (1–1–2017) 50,000
Cash at bank 60,000 Cash received on account:
Construct No. 10 Construct No. 101 640,000
Materials 400,000 Creditors 60,000
Wages 200,000 Provision for depreciation 60,000
Other expenses 50,000
Plant at site (cost) 100,000
1,210,000 1,210,000
Contract No. 101 was begun on 1st
January, 2017. The contract price was Rs. 1,500,000 and
cash received was 80% of work certified. The cost of work done but not yet certified is
estimated at Rs. 20,000. Materials at 31–12–2017 were valued at Rs. 15,000. Depreciative
plant at 20% on original cost.
Required: (i) Contract Account (ii) Balance sheet as on 31–12–2017
[Ans: National profit - 1,65,000]
Solution:

CONTRACT COSTING CHAPTER 9 123

 Contract no 10% account
For the year ended – 31–12–2017
Debt balance Amount Credit balance Amount
To materials 400,000 By work in progress
To wages 200,000 Work certified 800,000
To other expenses 50,000 Work uncertified 20,000 820,000
To plant 100,000 By materials at end 15,000
To national profit c/d 165,000 By plant at end 100,000
Less, depreciation 20,000 80,000
915,000 915,000
88,000 By notional profit b/d 165,000
To P/C A/C (165‚000×23 × 100
80
) 77,000
To balance c/d
165,000 165,000
Balance sheet
As on 31–12–2017
Liabilities Amount (Rs.) Assets Amount (Rs.)
Share capital 400,000
P/C A/C 50,000
Add, Profit on contract 88,000
Less, depreciation (40,000) 98,000
Creditors 60,000
Provision for depreciation
(60,000 + 20,000 + 40,000) 120,000
678,000 678,000
21. The following is the summary of contract ledger of Nischal constriction (P) Ltd. as on 31st
December 2016 respect of a contract. The contract price is for Rs. 1,200,000.
Materials purchased Amount (Rs.)
Materials purchased 400,000
Direct wages 200,000
Overhead 100% of direct wages
Plant purchased 100,000
Notional profit 120,000
Out of materials purchased Rs. 10,000 were damaged and disposed off it at Rs. 4,000.
Material used for the contract was only or Rs. 340,000. Depreciation is charged at 20% p.a.
on plant. Up to 31st December, Rs. 640,000 has been received in cash which amount
represents 80% of the work certified.
Required:
(i) Contract account showing value of work uncertified.
(ii) Contractee’s account
(iii) Work in progress account
[Ans: Work uncertified - 80,000]
Solution:
Contract Account
for the year ended 31st December, 2016
Particulars Amount Particulars Account
To materials purchased 400,000 By materials sold 4,000
To direct wages 200,000 By P/C A/c (Loss on materials sold) 6,000

124 COST AND MANAGEMENT ACCOUNTING

 To overhead 200,000 By materials at end 50,000
To plant purchased 100,000 (400,000–10,000–340,000)
To notional profit c/d 120,000 By plant 1,00,000
Less depreciation 20,000 80,000
By work in progress
Work certified 800,000
Work uncertified 80,000 880,000
1,020,000 1,020,000
64,000 By notional profit b/d 120,000
To P/C A/C (120‚000×23×100
80
) 56,000
To balance c/d
120,000 120,000
Contractee’s A/C
Particulars Amount (Rs.) Particulars Amount (Rs.)
To balance c/d 640,000 By balance A/c 640,000
By balance b/d 640,000
Work-in-progress A/c
Particulars Amount (Rs.) Particulars Amount (Rs.)
To contract A/c 880,000 By contract A/c 56,000
By balance c/d 824,000
880,000 880,000
To balance b/d 824,000
22. The following information are extracted from the books of Sagun contraction Co. Ltd:
Year 2008 Year 2009
Materials issued Rs. 3,00,000 84,000
Direct wages 2,30,000 105,000
Direct expenses 22,000 10,000
Indirect expenses 6,000 1,400
work certified 7,50,000 10,00,000
Work uncertified 8,000 –
Materials at site 5,000 7,000
Plant Issued 14,000 2,000
Cash received from contractee 6,00,000 10,00,000
Contract price was Rs. 10,00,000. The value of plant at the of years. 10,00,000. The value of
plant at the end of year 2008 and 2009 was Rs. 7,000 and 5,000 respectively.
Required: (i) Contract A/C and
(ii) Contractee's A/c with necessary workings.
[Ans: National Profit: 1,98,000]
Solution:
In the books of Sagun Construction Co. Ltd.
Contract A/C
Dr. As on year 2008 Ending Cr.
Particulars Rs. Particulars Rs.
To Material issued 3,00,000 By Materials at site 5,000
To Direct wages 2,30,000 By Pant at the end 7,000
To Direct Expenses 22,000 By Work in progress:
To Indirect expenses 6,000 Work certified 7,50,000

CONTRACT COSTING CHAPTER 9 125

 To Plant issued 14,000 Add: Work uncertified 8,000 7,58,000
To National profit c/d (bal. fig.) 1,98,000
7,70,000 7,70,000
To Profit & Loss A/c (Refer: Note 1) 105,600 By Notional profit b/d 1,98,000
To Reserve i.e. work in progress A/c 92,400
(balancing figure)
1,98,000 1,98,000
Working Note:
1. For the Notional profit (NP) transferred to P & L A/c:
Here,
Work Certifed
% of Work certified to Contact price = Contact price × 100
Rs. 750000
= × 100 = 75%
Rs.1000000
Since the calculated % falls in between the category of "50% to below 100%", then,
2 600000
the amount of NP to be transferred to P & L A/c = 3 × NP × = Rs. 1,05,600
750000
And,
The balance of NP transferred to Reserve A/c i.e. work in progress A/c = Rs. 1,98,000 –
1,05,600 = Rs. 92,400 (bal. fig).
Similarly,
Contract A/c
Dr. As on year 2009 Ending Cr.
Particulars Rs. Particulars Rs.
To Material at site b/d 5,000 By Materials at site 7,000
To Plant at the end b/d 7,000 By Plant at the end 5,000
To Work in progress b/d 6,65,600 By, Contractee's A/c (for the contract price on the 10,00,000
(Refer: Note 2) completion of contract)
To Materials issued 84,000
To Direct wages 105,000
To Direct Expenses 10,000
To Indirect Expenses 1,400
To Plant issued 2,000
To Profit & loss A/c (bal. fig.) 1,32,000
10,12,000 10,12,000
Working Note:
2. For the Actual balance of working progress A/c:
Dr. Work in progress A/c Cr.
Particulars Rs. Particulars Rs.
Year 2008: Year 2008: 92,400
To Contract A/c (WC +WUC) 7,58,000 By Contract A/c
(for the Reserve)
By balance c/d 6,65,600
7,58,000 7,58,000
Year 2009: Year 2009:
To Balance b/d 6,65,600 By Contract A/c 6,65,600

126 COST AND MANAGEMENT ACCOUNTING

 Note that:
At the end of Yr. 2009, the contract is being completed and hence whatever amount is
earned from contract, that should be totally transferred to P & L A/c assuming that the
actual profit earned from contract.
ii)
Dr. Contractee's A/c Cr.
Particulars Rs. Particulars Rs.
Year 2008: Year 2008:
To, Balance c/d 6,00,000 By Bank A/c 6,00,000
6,00,000 6,00,000
Year 2009: Year 2009:
To, Contract 10,00,000 By Balance b/d 6,00,000
A/c
By Bank A/c (Cash received on completion of contract : bal.
fig) 4,00,000
10,00,000 10,00,000
23. Global Construction Ltd. is engaged in two contracts A & B during the year. The following
information are obtained from the records at the end of year. 2068.
Contract A Contract B
Date of commencement 2069 – 01 – 01 2068 – 04 – 01
Contract price Rs. 6,00,000 Rs. 5,00,000
Materials issued 1,60,000 60,000
Materials Returned 4,000 2,000
Materials at site 22,000 8,000
Direct labour 1,50,000 42,000
Direct Expenses 66,000 35,000
Establishment Expenses 25,000 7,000
Plant installed at cost 80,000 70,000
value of pant at the end 65,000 64,000
value of work certified 4,20,000 1,35,000
Cost of work not yet certified 23,000 10,000
Cash received from contractee 378,000 125,000
Architect fees 2,000 1,000
During the period materials amounting to Rs. 9,000 have been transferred from contract A
to Contract B.
Required: a) Contract B.
b) Contractee's A/c
b) Balance sheet showing the relevant items.
[Ans: National Pofit: 60,000; B/S: 2,24,000]
Solution:
a)
In the books of Global construction Ltd.
Contract- A Account
Dr. As on 31st Chaitra, 2068 Cr.
Particulars Rs. Particulars Rs.
To Material issued 1,60,000 By Materials Returned 4,000
To Direct Labour 1,50,000 By Materials at site 22,000
To Direct Expenses 66,000 By Value of plant at the end 65,000

CONTRACT COSTING CHAPTER 9 127

 To Establishment Expenses 25,000 By Work in progress:
To Plant Installed at cost 80,000 Work certified : 4,20,000
To Architect fees 2,000 Add: Work uncertified 23,000 4,43,000
To Notional profit c/d (bal. fig.) 60,000 By, Materials transferred to contract B 9,000
5,43,000 5,43,000
To P & L A/c 36,000 By National Profit b/d 60,000
To Reserve A/c i.e. work in progress A/c 24,000
(balancing figure)
60,000 60,000
Working Note:
i) For the amount of Notional profit (NP) transferred to P & L A/c:
WC
Here, % we to CP = CP × 100
420000
= × 100
600000
= 70%
Since, the calculated % falls in between the category of "50% to below 100%", then-
2 CR
the amount of NP to be transferred to P &L A/c = 3 × NP × WC
2 378000
= 3 × 60,000 ×420000
= Rs. 36,000
And, the balance of NP to be transferred to Reserve A/c = Rs. 60,000 – 36,000 = Rs. 24,000
Similarly,
Contract -B Account
Dr. As on 31st Chaitra, 2068 Cr.
Particulars Rs. Particulars Rs.
To Material issued 60,000 By Materials Returned 2,000
To Direct labour 42,000 By Materials at site 8,000
To Direct Expenses 35,000 By Values of plant at the end 64,000
To Establishment Expenses 7,000 By Work in progress:
To Plant Installed at cost 70,000 Work certified 135,000
To Architect's fees 1,000 Add: Work uncertified 10,000 1,45,000
To Materials transferred from contract A 9,000 By P & L A/c (Loss on contract bal. fig) 5,000
2,24,000 2,24,000
b)
Dr. Contractee's A/c Cr.
Particulars A B Particulars A B
To, Balance c/d 378,000 125,000 By Bank A/c 378,000 125,000
378,000 125,000 378,000 125,000

128 COST AND MANAGEMENT ACCOUNTING

c) Balance sheet
As on 31st Chaitra 2068
Liabilities Rs. Assets Rs.
Profit and loss a/c: Plant at the end:
Add: Profit from contract A = 36,000 from contract A = 65,000
Less: Loss from contract B = (5,000) 31,000 Add: " " B = 64,000 129,000
Materials returned to stores:
from contract A = 4,000
Add: " " B = 2,000 6,000
Materials at site:
from contract A = 22,000
Add: " " B = 8,000 30,000
Work in progress:
from contract A = 41,000
Add: " " B = 20,000 61,000
(Refer : Note: 1)
Working Notes:
1. For the work in progress for balance sheet purpose:
Details A B
Work certified Rs. 420,000 Rs. 135,000
Add: Work uncertified. 23,000 10,000
443,000 145,000
Less: Reserve A/c 24,000 –
419,000 145,000
Less: Cash received from contractee 378,000 125,000
 Work in progress to be shown in balance sheet 41,000 20,000
24. Paramount Engineering is engaged in the construction of a bridge under a long term
contract. The cost incurred upto 31st March, 2001 was as under:
Direct Materials Rs. 280,00,000
Direct Labour 100,00,000
Overheads 60,00,000
440,00,000
Erection cost to date 110,00,000
 Total cost of work to date Rs. 550,00,000
The contract price is Rs. 11,00,00,000 and the cash received on account till 31 st March 2001,
was Rs. 600,00,000. A technical estimate of the contract indicates the following degree of
completion of work.
Fabrication: Direct materials 70%
Direct labour and overheads 60% and, Erection 40%
You are required to estimate the profit that could be taken to profit and loss a/c against
this partly completed contract as on 31st March, 2001.
[Ans: Total estimated cost - 941,66,666.67]
Solution:
Statement showing the Estimated profit
Particulars Rs. Rs.
Direct materials at 70% (given) 280,00,000
Direct labour at 60% (given) 100,00,000
Overheads at 60% (given) 60,00,000
Erection cost at 40% (given) 110,00,000
Total cost of work to date 550,00,000

CONTRACT COSTING CHAPTER 9 129

 Add: Further estimated costs:
28000000 120,00,000
Direct materials (at 100 – 70% = 30%) = × 30
70
10000000 66,66,666.67
Direct labour (at 100 – 60% = 40%) = 60 × 40
6000000 40,00,000
Overhead cost (at 100 – 60% = 40%) = 60 × 40
11000000 165,00,000 391,66,666.67
Erection cost (at 100 – 40% = 60%) = × 60
40

 Total estimated costs 941,66,666.67

Add: Estimated profit (bal. fig.) 158,33,333.33
Contract price (given) 11,00,00,000
Now,
The amount of estimated profit that could be transferred to profit and loss A/c
Cost of work to date
= Estimated profit × Total estimated cost
55000000
= Rs. 158,33,333.33 ×
94166666.67
= Rs. 92,47,787.608
Alternatively,
The amount of estimated profit that could be transferred to P/L A/c =
Cash Received
Estimated profit × Contract price
60000000
= Rs. 158,33,333.33 ×
110000000
= Rs. 86,36,363.635

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130 COST AND MANAGEMENT ACCOUNTING