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The Following Particulars Are Extracted from the Books of Nirmala Constructions, Chennai on 31/3/2018 : - Cost Accounting(Financial Accounting and Auditing 10)

The following particulars are extracted from the books of Nirmala Constructions, Chennai on 31/3/2018 :

Particulars (Rs.)
Contract price 12,00,000
Plant and Machinery ( 1/4/2017) 60,000
Material 3,41,200
Labour Charges 2,97,500
Engineer's Fees 12,660
Outstanding Wages 10,760
Work uncertified 24,000
Overheads 16,480
Material returned to stores 3,200
Material at site 7,400
Plant and Machinery at site (31/3/2018) 44,000
Work certified 7,80,000
Cash received 7,02,000

Prepare Contract Account for the year ended 31/3/2018 and Extract of Balance Sheet as on that date.

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Solution

Dr. Books of Nirmala Construction, Chennai
Contract Alc (For the Year Ended 31-3-2018)
Cr.
Particulars (Rs.) Particulars (Rs.)
To Material 3,41,200 By Work Uncertified 24,000
To Labour Charges 2,97,500 By Work Certified 7,80,000
To Engineer's Fees 12,660 By Material Returned to Store 3,200
To Outstanding Wages 10,760 By Material at Site 7,400
To Overheads 16,480 By Plant and Machinery at Site 44,000
To Plant and Machinery 60,000    
To Notional Profit c/d 1,20,000    
  8,58,600   8,58,600
To Profit and Loss A/c (Profit) 72,000 By Notional Profit b/d 1,20,000
To Stock Reserve 48,000    
  1,20,000   1,20,000

Extracts of Balance Sheet
(For the Year Ended 31-3-2018)

Liabilities (Rs.) Assets   (Rs.)
Profit and Loss Alc 72,000 Plant and Machinery 60,000  
Outstanding Wages 10,760 (-) Depreciation 16,000 44,000
    Material at Site   7,400
    Work-in-Progress :    
    Work Certified 7,80,000  
    (+) Work Uncertified 24,000  
      8,04,000  
    (-)Cash Received 7,02,000  
      1,02,000  
    (-) Stock Reserve 48,000 54,000

Working Notes : Contract Price = Rs. 12,00,000
Work Certified = Rs. 7,80,000
i.e. More that 50%, but less than 90%

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

`therefore 2/3xxRs. 1,20,000xx (Rs.7,02,000)/(Rs.7,80,000`

∴ Rs. 80,000 x 0.9 = 72,000
∴ Profit and Loss (Profit) - Rs. 72,000
∴ Reserve = Notional Profit (-) Profit
∴ Reserve = Rs.1,20,000 (-)  Rs. 72,000
∴ Reserve = Rs. 48,000

Concept: Contract Account - Contract Profit and Balance Sheet Entries
  Is there an error in this question or solution?
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