Example of contract account, Cost Accounting

Example of Contract Account 

A company has been awarded a contract to build a house.  It is a contract Number 45 for the company and the contract price is shs.2.65 million. At the ending of the company's financial year, the contract was 85 percent complete and hence considered as being near completion. You are provided also along with the given information about the contract as:

Particulars

Shs.

Materials purchased and delivered

580,000

Materials issued from store

60,000

Materials returned to stores

7,000

Site expenses

300,000

Site wages                                           

200,000

Plant sent to site                                 

100,000

Architect's fees                                     

30,000

Plant returned from site                      

10,000

Subcontractor's fees               

105,000

Head Office overheads absorbed

  60,000

Valuation at the ending year disclosed the given as:

 

Shs

Materials:

19,500

Plant on site

50,000

Work done but not yet certified

60,000

Additional Information

1. The portion of the work that was completed throughout the year and certified via the architect was assessed as representing 75 percent of the whole contract price. The contractee made payments to this extent less 10 percent retention money.

2. The management of the company decided for the reasons of preparing the company's annual accounts to make a provision of a third of the national profit against the possibility of defects and other contingencies arising later in respect of the work already in previous certified for payment.

 Required 

a) The contract account 

b) Amount of loss or profit to be taken to the main loss and profit account of the company. 

c) Value of work in progress.

Contract No 45 Account

 

Shs

 

Shs

Materials Purchased:

580 ,000

Materials Returned to stores

9,000

Materials issued from stores

6,000

Plants returned from site

10,000

Site expenses

300,000

Materials c/f

19,500

Site wages

200,000

Plant c/f

50,000

Plant set to site

100,000

Cost of work done

1,346,500

Architects fees

30,000

 

 

Sub-contractors

105,000

 

 

Head office overheads

__60,000

 

     _______

 

1,435,500

 

1,435,500

Cost of work done b/d

1,346,500

Value of work certified

 

National profit:  701,000

 

75% x 2,650,000

1,987,500

Profit taken:

473,175

Work done but not

 

Profit in suspense

227,825

certified (closing stock)

___60,000

Balances b/f:  materials

19,500

 

2,047,500*

                       Plant

50,000     

 

 

                   Work not certified

60,000

 

 

Profit considered as:

= National Profit x (Cash Received /Contract Price)

= 701, 000 x (90 percent x 1, 987500) / 2,650,000

= 701, 000 x (1,788,750/ 265,000)

= 437, 175

Profit in Suspense   = 701,000 -473,175

                             =   Shs. 227,825

Value of Work in Progress:

 

Shs.

Cost of work certified

1,346,500

Add:  Profit taken

   473,175

 

1,819,675

Less:  Cash Received

(1,788,750)

Work in progress valuation:

     30,925

Posted Date: 2/7/2013 8:26:20 AM | Location : United States







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