University of Mumbai course B.Com (General) Semester 6 (TYBcom)
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Modern Contractors Have Undertaken the Following Two Contracts on 1st January, 2017. - Cost Accounting(Financial Accounting and Auditing 10)

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Question

Modern Contractors have undertaken the following two contracts on 1st January, 2017.

Particulars Contract A(Rs.) Contract B(Rs.)
Materials sent to sites 85,349 73,267
Labour engaged on sites 74,375 68,523
Plant installed at sites at cost 15,000 12,500
Direct expenditure 3,167 2,859
Establishment charges 4,126 3,852
Materials returned to stores 549 632
Work certified 1,95,000 1,45,000
Materials in hand on 31st Dec. 2017 1,883 1,736
Cost of work not certified 4,500 3,000
Wages accrued on 31 51 Dec. 2017 2,400 2,100
Direct expenditure accrued on 31 Dec. 2017 240 180
Value of plant on 31st Dec. 2017 11,000 9,500

The contract prices have been agreed at Rs. 2,50,000 for Contract A and Rs. 2 00 000 for Contract B. Cash has been received.from contractors as follows:
Contract A Rs. l,80,000 and Contract B Rs. 1,40,000.
Prepare Contract Accounts, Contractee's Account and show how the Work-in-Progress will appear in the Balance Sheet of the contractor.

Solution

Books of Modern Contractors

Dr. Contract Account Cr.
Particulars Contract A(Rs.) Contract B(Rs.) Particulars Contract A(Rs.) Contract B(Rs.)
To Materials sent to sites 85,349 73,267 By Material returned to stores 549 632
To Labour engaged on Sites 74,375 68,523 By Work Certified 1,95,000 1,45,000
To Plant installed at Sites 15,000 12,500 By Materials on Hand (31-12-2017) 1,883 1,736
To Direct Expenditure 3,167 2,859 ByWork not Certified 4,500 3,000
To Establishment Charges 4,126 3,852 By Value of Plant (31-12-2017) 11,000 9,500
To Accrued Wages 2,400 2,100 By Actual Loss - 3,413
To Direct Expenditure Accrued 240 180      
To Notional Profit c/d 28,275 -      
  2,12,932 1,63,281   2,12,932 1,63,281
To Profit and Loss Alc 17,400 - By Notional Profit b/d 28,275 -
To Stock Reserve 10,875 -      
  28,275 -   28,275 -
Dr. Contractee's Account Cr.
Particulars Contract A(Rs.) Contract B(Rs.) Particulars Contract A(Rs.) Contract B(Rs.)
To Work Certified 1,95,000 1,45,000 By Cash Received 1,80,000 1,40,000
      By Bal. c/d (Balancing Fig) 15,000 5,000
  1,95,000 1,45,000   1,95,000 1,45,000

Balance Sheet (For the year Ended 31-12-2017)
(Extracts Only)

Liabilities   (Rs.) Assets   (Rs.)
Profit and Loss A/c (Contract - A)   17,400 Work-in-Progress:(Contract A)    
Accrued Wages     Work Certified 1,95,000  
Contract A: 2,400   (+) Work Uncertified 4,500  
Contract B: 2,100 4,500   1,99,500  
Accrued Direct Expenditure     (-) Reserve 10,875  
Contract A: 240   (-) Cash Received 1,80,000 8,625
Contract B: 180 420 Work-in-Progress: (Contract B)    
      Work Certified 1,45,000  
      (+) Work Uncertified 3,000  
        1,48,000  
      (-) Cash Received 1,40,000 8,000

Working Notes :
(i) Calculation of Profit and Loss and Reserve :
Contract - A :
Work Certified = Rs. 1,95,000 .
Contract Price = Rs. 2,50,000 Le; More than 50%, but less than 90%
`therefore "National Profit" xx 2/3xx"Cash Received"/"Work Certified"`

`therefore Rs. 28,275xx2/3xx(Rs.1,80,000)/(Rs. 1,95,000) `

`therefore 18,850xx180/195` = Rs. 17,400 → Profit

And Rs. 10,875 Rs. Reserve (Rs. 28,275 - Rs.17,400)

  Is there an error in this question or solution?
Solution Modern Contractors Have Undertaken the Following Two Contracts on 1st January, 2017. Concept: Contract Account.
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