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Vaishali Undertook a Contract for the Construction of House on 1.1.2017. the Contract Price Was Rs. 22,50,000 the Following Details Are Available for 2017 : - Cost Accounting(Financial Accounting and Auditing 10)

Vaishali undertook a contract for the construction of house on 1.1.2017. The contract price was Rs. 22,50,000 The following details are available for 2017 :

Particulars (Rs.)
Materials purchased and issued 3,60,000
Materials issued from stores 45,000
Labour 1,35,000
Plant installed at site 1,80,000
Direct expenses 90,000
Establishment Charges 22,500
Materials returned to stores 22,500
Materials on hand at the end of the year 9,000
Plant in hand at the end of the year 1,35,000
Wages outstanding 27,000
Direct expenses outstanding 36,000
Work uncertified 95,400
Cash received (80% of work certified) 9,00,000

Prepare the Contract Alc and show the relevant items in Balance Sheet.

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Solution

Books of Vaishali

Dr. Contract A/c (For the Year 2017) Cr.
Particulars (Rs.) Particulars (Rs.)
To Material Purchased and Issued 3,60,000 By Materials returned to Stores 22,500
To Materials Issued from Stores 45,000 By Material on Hand 9,000
To Labour 1,35,000 By Plant in Hand 1,35,000
To Establishment Charges 22,500 By Work in Progress:  
To Wages (Outstanding) 27,000 Work Certified       11,25,000  
To Direct Expenses (Outstanding) 36,000 Work Uncertified         95,400 12,20,400
To Direct Expenses 90,000    
To Plant Installed at Site 1,80,000    
To Notional Profit c/d 4,91,400    
  13,86,900   13,86,900
To Profit and Loss Alc* 2,62,080    
To Stock Reserve 2,29,320 By Notional Profit b/d 4,91,400
  4,91,400   4,91,400

Working Note:
(1) * Profit and Loss Alc : Contract Price = Rs. 22,50,000
Amount of work certified= Rs. 11,25,000
That means amount of work certified is `1/2` ( 50%) of contract price.
∴The following formula should be used =`2/3 xx "Notional Profit "xx "Cash Received"/"Work certified"`

∴ `2/3xx Rs. 4,91,400 xx (Rs.9,00,000)/(Rs.11,25,000)` = Rs. 2,62,080 (Profit and Loss Alc)

∴ Rs. 2,29,320 (Reserve)(Rs. 4,91,400 - Rs. 2,62,080)

Balance Sheet (Extracts Only)

Liabilities (Rs.) Assets (Rs.) (Rs.)
Profit and Loss Alc 2,62,080 Work-in-Progress :    
Outstanding Wages 27,000 Work Certified 11,25,000  
Outstanding Direct Expenses 36,000 (+)Work Uncertified (+) 95,400  
      12,20,400  
    (-)Reserve 2,29,320  
    (-)Cash received 9,00,000 91,080
    Plant on Site at year End   1,35,000
    Materials on Site at Year End   9,000
Concept: Contract Costing Concept - Work Certified
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