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Question
The following information is relating to a building contract of Rs. 50,00,000. The contractee has a reed to a 90% of the work certified in cash.
| Particulars | 2017(Rs.) | 2018(Rs.) | 2019(Rs.) |
| Materials | 7,00,000 | 8,00,000 | 4,00,000 |
| Wages | 3,20,000 | 4,80,000 | 5,00,000 |
| Direct expenses | 20,000 | 30,000 | 10,000 |
| Indirect expenses | 10,000 | 7,000 | 3,000 |
| Work certified | 10,00,000 | 30,00,000 | 50,00,000 |
| Work uncertified | - | 40,000 | - |
| Plant issued | 2,00,000 | - | - |
| Value of lant on 31st Dec. | 1,80,000 | 1,60,000 | 1,30,000 |
Prepare Contract A/c for the year 201 7, 2018, and 2019.
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Solution
Working Notes :
i) 2016-17:
The entire amount of loss suffered during the year 2016-17 is to be transferred to Profit and Loss Account
ii) 2017-18:
As the value of Work Certified Rs. 30,00,000) is more than `1/2` of Contract Price Rs. 50,00,000), the following formula is to be applied to find out the amount of notional profits to be credited to Profit and Loss Account.
`=2/3xx"Notional Profits"xx"Cash Received"/"Work Certified"`
`=2/3xx"Rs." 7,03,000xx(27 ,00,000)/(30,00,000)=`Rs. 4,21,800
iii) 2018-19 :
As entire contract is completed during the year 2018-19, the total amount of profit is to be transferred to Profit and Loss Account
In the books of Niwara Builders, Nanded
| Dr. | Contract Account for the year ended 31st March, 2017 | Cr. |
| Particulars | (Rs.) | Particulars | (Rs.) |
| To Materials | 7,00,000 | By Work-in-Progress: | |
| To Labour | 3,20,000 | i) Work Certified | 10,00,000 |
| To Expenses - Direct | 20,000 | ii) Work Uncertified | - |
| To Expenses - Indirect | 10,000 | iii) Plant in hand(Closing Balance C/D.) | 1,80,000 |
| To Plant issued | 2,00,000 | By Profit and Loss *(Balancing figure i.e. Actual loss) | 70,000 |
| 12,50.000 | 12,50.000 |
| Dr. | Contract Account for the year ended 31st March, 2018 | Cr. |
| Particulars | (Rs.) | Particulars | (Rs.) |
| To Work-in-Progress : | By Work-in-Progress: | ||
| i) Work Certified | 10,00,000 | i) Work Certified | 30,00,000 |
| ii) Work Uncertified | - | ii) Work Uncertified | 40,000 |
| iii) Plant in hand | 1,80,000 | iii) Plant in hand (Closing Balance C/D.) |
1,60,000 |
| To Materials | 8,00,000 | ||
| To Labour | 4,80,000 | ||
| To Expenses- Direct | 30,000 | ||
| To Expenses - Indirect | 7,000 | ||
| To Notional Profits C/D *(Balancing Figure i.e. Notional Profits) |
7,03 ,000 | ||
| 32.00.000 | 32.00.000 | ||
| To Profit and Loss | 4,21 ,800 | ||
| To Work-in-Progress(Reserve C/D) | 2,81 ,200 | By Notional Profits B/D | 7,03,000 |
| 7,03.000 | 7,03.000 |
| Dr. | Contract Account for the year ended 31st March, 2019 | Cr. |
| Particulars | (Rs.) | Particulars | (Rs.) |
| To Work-in-Progress : | By Work-in-Progress : (Reserve B/D) | 2,81,200 | |
| i) Work Certified | 30,00,000 | By Contractee's Alc (Work Certified) | 50,00,000 |
| ii) Work Uncertified | 40,000 | By Plant in hand (Closing Balance C/D) | 1,30,000 |
| iii) Plant in hand (Opening Balance B/D.) | 1,60,000 | ||
| To Materials | 4,00,000 | ||
| To Labour | 5,00,000 | ||
| To Expenses - Direct | 10,000 | ||
| To Expenses - Indirect | 3,000 | ||
| To Profit and Loss (Balancing Figure i.e. Actual Profit) | 12,98,200 | ||
| 54,11,200 | 54,11,200 |
Working Notes:
| Particulars | 2016-17(Rs.) | 2016-18(Rs.) | 2016-119(Rs.) |
| Contract Price | 50,00,000 | 50,00,000 | 50,00,000 |
| Work Certified | 10,00,000 | 30,00,000 | 50,00,000 |
| Work Uncertified | - | 40,000 | - |
| Cash Received | 9,00,000 | 27,00,000 | - |
| Retention Money | 1,00,000 | 3,00,000 | - |
| Actual Loss/Notional Profits/ Actual Profit | 70,000 | 7,03,000 | 12,98,200 |
| (AL) | (NP) | (AP) |
