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:
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Particulars
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Shs.
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Materials purchased and delivered
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580,000
|
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Materials issued from store
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60,000
|
|
Materials returned to stores
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7,000
|
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Site expenses
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300,000
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Site wages
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200,000
|
|
Plant sent to site
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100,000
|
|
Architect's fees
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30,000
|
|
Plant returned from site
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10,000
|
|
Subcontractor's fees
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105,000
|
|
Head Office overheads absorbed
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60,000
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Valuation at the ending year disclosed the given as:
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|
Shs
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Materials:
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19,500
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Plant on site
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50,000
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Work done but not yet certified
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60,000
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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
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Shs
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Shs
|
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Materials Purchased:
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580 ,000
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Materials Returned to stores
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9,000
|
|
Materials issued from stores
|
6,000
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Plants returned from site
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10,000
|
|
Site expenses
|
300,000
|
Materials c/f
|
19,500
|
|
Site wages
|
200,000
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Plant c/f
|
50,000
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|
Plant set to site
|
100,000
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Cost of work done
|
1,346,500
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Architects fees
|
30,000
|
|
|
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Sub-contractors
|
105,000
|
|
|
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Head office overheads
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__60,000
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|
_______
|
|
|
1,435,500
|
|
1,435,500
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Cost of work done b/d
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1,346,500
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Value of work certified
|
|
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National profit: 701,000
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75% x 2,650,000
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1,987,500
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Profit taken:
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473,175
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Work done but not
|
|
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Profit in suspense
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227,825
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certified (closing stock)
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___60,000
|
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Balances b/f: materials
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19,500
|
|
2,047,500*
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Plant
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50,000
|
|
|
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Work not certified
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60,000
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|
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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:
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Shs.
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Cost of work certified
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1,346,500
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Add: Profit taken
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473,175
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|
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1,819,675
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Less: Cash Received
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(1,788,750)
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Work in progress valuation:
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30,925
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