Question

Gajanan Construction, Mumbai took a Contract No. 51 for the construction of a school building on 1st January, 2017. The contract price is fixed at Rs. 15,00,000; subject to a retention of 20% of work certified. The following are the details of expenditure made by contractor on this contract during the year :

Particulars	(Rs.)
Direct labour charges	4,05,000
Material issued from stores	4,20,000
Materials directly purchased	81,200
Plant installed at site on 30th June, 2017	60,000
Direct expenses (inclusive of Direct Expenses due but not paid Rs. 3,000)	23,000
Management overheads	37,200
Materials transferred to Contract No. 55	6,300
Outstanding Wages	7,800
Material transferred from Contract No. 55	1,600
Work certified	11,00,000
Work uncertified	16,500

Depreciation on plant is provided @ 40% p.a. on the original cost.
Prepare:
(A) Contract Alc
(B) Contractee A/c
(C) Extracts of Balance Sheet as on 31st December, 2017.

Answer 1

Book of Gajanan Construction, Mumbai

Dr

(Contract No. 51) Contract Account (For the Year Ended 31.12.2017)

Cr

Particulars	(Rs.)	Particulars		(Rs.)
To Direct labom charges	4,05,000	By Materials transferred to Contract No. 55		6,300
To Materials issued	4,20,000	By Work Certified		11,00,000
To Materials directly purchased	81,200	By Work Uncertified		16,500
To Plant installed	60,000	By Value of Plant(on 31.12.2017)
To Direct expenses (including outstanding)	23,000	Plant installed	60,000
To Management overheads	37,200	Depreciation @ 40% p.a. for 6 months  `(60,000xx40/100xx6/12)`	12,000	48,000
To Outstanding wages	7,800
To Materials transferred from Contract No. 55	1,600
To Notional Profit c/d	1,35,000
	11,70,800			11,70,800
To Profit and Loss Alc*	72,000
To Stock Reserve A/c	63,000	By Notional Profit b/d		1,35,000
	1,35,000			1,35,000

Dr.

Contractee Account

Cr.

Particulars	(Rs.)	Particulars	(Rs.)
To Work certified	11,00,000	By Cash received	8,80,000
		Bv Balance c/d	2,20,000
	11,00,000		11,00,000

BALANCE-SHEET (EXTRACTS ONLY)
(For the Year Ended 31-12-2017)

Liabilities	(Rs.)	Assets	(Rs.)	(Rs.)
Profit and Loss Alc	72,000	Plant Installed	60,000
Outstanding Liabilities :		Less: Dep. @ 40% p.a.	12,000	48,000
(i) Direct Expenses  3,000>	3,000	Work-in-Progress :
		Work Certified	11,00,000
		Add: Work Uncertified	16,500
			11,16,500
		Less: Cash Received	8,80,000
			2,36,500
		Less: Stock Reserve	63,000>	1,73,500

* Note : As the value of work certified  Rs. 11 ,00,000 is more than `1/2` of the contract price (Rs. 15,00,000), the following formula is applied to find out the amount of notional profit to be credited to Profit and Loss Account.

`= 2/3xx "Notional Profit"xx "Cash Received"/"Work Certified"`

`=2/3xxRs. 1,35,000xx (Rs. 8,80,000)/(Rs.11,00,000)` = Rs. 72,000
Stock Reserve = Rs. 63,000 (Rs. 1,35,000 - Rs. 72,000)