SOLUTIONS TO ASSIGNNT PROBLEMS. Problem No.1

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1 14. CONTRACT COSTING SOLUTIONS TO ASSIGNNT PROBLEMS Problem No.1 Contract A/c Amount Amount To Materials A/c 5,000 By Work in Progress Work Certified 10,000 Work Uncertified 3,800 13,800 To Direct labour A/c 4,600 By closing stock of raw Materials 950 To indirect labour A/c 640 To overhead epenses 1,950 To Depreciation on plant 125 To Notional Profit ,750 14,750 To P & L A/c 1,623 By Notional Profit 2,435 To Reserve A/c 812 2,435 2,435 P & L A/c for period Amount Amount To Net Profit 1,623 By Contract A/c 1,623 1,623 1,623 Balance Sheet Amount Amount Plant 12,000 Less: Depreciation ,875 Net Profit 1,623 Closing Stock of raw Materials 950 Work in Progress 13,800 () Reserve ,988 Profit transfer to P & L A/c Notional Profit X 2/3 2,435 X 2/3 1,623. Problem No.2 1. Contract Account for the year ended 31 st March Rs. Rs. Rs. To Materials 35,82,600 By Work in Progress A/c To Direct Wages Paid 32,62,700 Work Certified 79,90,000 Rs.71,91,000 90% Add: Payable 78,120 33,40,820 Work Uncertified 3,17,000 To Direct Epenses Paid 1,68,000 Add: Payable 9,310 1,77,310 By Materials returned to Stores 14,840 IPCC_34e_Costing_Contract Costing_Assignment Solutions 72

2 No.1 for CA/CWA & MEC/CEC MASTER MINDS To Planning and Estimation 3,50,000 By Materials at Site 85,400 To Cost of Plant installed at 7,00,000 By WDV of Plant site 6,16,000 site To Establishment Epenses 2,03,000 To HO Epenses 2,50,000 Apportioned To Notional Profit balancing 4,19,510 figure Total 90,23,240 Total 90,23,240 To P & L A/c Profit transfer See Note b 2,51,706 By Notional Profit b/d 4,19,510 To Reserve Profit c/d 1,67,804 balancing figure Total 4,19,510 Total 4,19,510 To WorkinProgress b/d 83,07,000 By Reserve Profit b/d 1,67,804 (WC+WUC) To WDV of Plant at site b/d 6,16,000 To Materials at Site b/d 85,400 Notes: a. Percentage of Completion Rs.79,90,000 Rs.91,00, % b. So, Profit trfd to P&L A/c 2 3 CashReceived NotionalPr ofit 2 Rs. 71,91,800 Rs.4,19,510 3 Rs.79,90,000 Rs. 2,51, Balance Sheet as on 31 st March (Abstract) Liabilities Rs. Assets Rs. Profit and Loss A/c 2,51,706 Fied Assets: Current Assets: Contract WorkinProgress Work Certified 79,90,000 Work Uncertified 3,17,000 Plant (WDV) at Site (See Note a) 6,16,000 Materials at Site 85,400 SubTotal 90,08,400 Current Liabilities: Less: Reserve Profit (or Profitin (1,67,804) Reserve) Wages Accrued 78,120 Net Total 88,40,596 Direct Epenses Accured 9,310 Less: Contractee s Account balance (71,91,000) Net Value of Contract WIP 16,49,596 Note: a. WDV ofplant at site can also be shown under the heading Fied Assets. b. The above is only an etract of the Balance Sheet. Hence, Totals are not drawn up. Problem No.3 IPCC_34e_Costing_Contract Costing_Assignment Solutions 73

3 Contract A/c for the year ended 31 st December Rs. Rs. To Materials (Issued Rs. 58,000 53,000 By Contractee s A/c (Contract 1,75,000 Returns Rs. 5,000) completed) To Wages (given) 75,000 To Direct Charges (given) 12,000 To Establishment Charges (given) 8,000 To Depreciation on Plant (20% of 6,000 Rs.30,000) To P&L A/c Profit transferred (bal.fig) 21,000 Total 1,75,000 Total 1,75,000 Note: Profit of Rs.21,000 is to be entirely taken to P & L Account, since contract is fully complete and all cash is received. Problem No. 4 In the books of contractor Dr. Contract A/c for the year ended Cr. To Opening Work in Progress To Materials To Wages To Electrical Fittings To Road making charges To Establishment charges (12,24020:14) To depreciation on plant To National Profit To P & L A/c (Profit) (W.N1) To Work in Progress reserve A 14,000 23,000 20,000 1,400 8,000 7,200 1,000 (12, % 10/12) B 16,600 14, , (6,000 10% 8/12) 2,700 By Materials at site By Work in progress: Work certified (24,000 2/3) Work uncertified By Contractee A/c By P& L A/c (Loss) A 400 B ,000 2,500 39,040 39,040 1,200 By National Profit 1,500 2,700 74,600 2,700 74,600 2,700 60,000 14,200 W.N1: Profit to be taken to Profit & Loss A/c National Profit 2,700 Percentage of work completed 36,000/40,000 90% Profit to be taken to P & L A/c 2,700 2/3 2/3 1,300 Given Cash Received / Work certified 2/3 24,000 / Work Certified Work Certified 24,000 3/2 36,000 Problem No.5 Brock Construction Ltd. Contract A/c (November 1, 2003 to Oct. 31, 2004) Amount Amount IPCC_34e_Costing_Contract Costing_Assignment Solutions 74

4 No.1 for CA/CWA & MEC/CEC MASTER MINDS To Materials issued 6,75,000 By Plant returned to store on 31/03/04 at cost 75,000 Less: Dep (1/3) 10,417 64,583 To Labour paid 4,50,000 By WIP Prepaid 25,000 4,25,000 Certified 20,00,000 To Plant Purchased 3,75,000 Uncertified 75,000 20,75,000 To Epenses paid 2,00,000 By Plant at site 3,00,000 31/10/04 at Cost To Outstanding 50,000 2,50,000 Less: Dep (1/3) 1,00,000 2,00,000 To Notional profit 6,89,583 By Materials at site 75,000 c/d 24,14,583 24,14,583 To P/L A/c 3,34,305 1,48,580 By Notional Profit 6,89,583 (17,50,000 / 20,00,000) (20,00,000 / 39,37,500) b/d To Workinprogress (Profit in reserve) 5,41,003 6,89,583 6,89,583 Brock Construction Ltd. Contract A/c (November 1, 2003 to March 31, 2005) (For computing estimated profit) Amount Amount To Material issued 19,12,500 By Material at site 37,500 (6,75,000+12,37,500) To Labour (paid & 10,15,000 By Plant returned to 64,583 outstanding) (4,25,000+5,87,500+2,500) stores on 31/3/04 To Plant purchased 3,75,000 By Plant returned to stores on 31/3/05 1,72,222 To Epenses (2,50, ,25,000) 5,75,000 Cost 3,00,000 To Estimated profit 3,34,305 Less: Dep. 1,00,000 Less: 5 month Dep. 27,778 27,778 By Contractee A/c 39,37,500 42,11,805 42,11,805 Problem No.6 In the books of Re Ltd. Dr. Contract A/c for the year ended Cr. Amount Amount To Materials 75,000 By Materials at site 5,000 IPCC_34e_Costing_Contract Costing_Assignment Solutions 75

5 To Labour To Miscellaneous epenses To Depreciation on plant ( 40,000 20% 6 ) 12 To National profit c/d To Costing Profit & Loss A/c To WIP reserve 55,000 20,000 4,000 2,07,500 2,12,500 2,12,500 26,400 32,100 By Workinprogress Work certified 2,00,000 Work uncertified 7,500 By National profit b /d W.N1: Statement showing calculation of cost to date, estimated cost to be incurred, total cost Cost to date (6 m) Estimated cost to be incurred (9m) Total cost Materials 75,000 1,30,000 2,05,000 Labour 55,000 60,000 1,15,000 Miscellaneous Epenses 20,000 35,500 55,500 Less: Closing Stock 5,000 5,000 Add: Opening Stock 5,000 5,000 Add: Depreciation 4,000 4,500 8,500 (40,000 20% 6/12) (30,000 20% 9/12) Total 1,49,000 2,35,000 3,84,000 W.N2: Calculation of estimated profit on completion of contract Amount Contract Price 4,50,000 Less: Cost incurred to date (W.N1) 1,49,000 Less: Estimated cost to be incurred (W.N1) 2,35,000 Estimated Profit 66,000 Profit to be taken to Profit & Loss A/c: cashreceived 1,80,000 Estimated Profit 66,000 contract price 4,50,000 costincurred to date cashreceived Note: Alternative formula, Estimated Profit estimated totalcost work certified Problem No.7 26,400 Dr. Contract Account for the year ended 31st March, 2002 Cr. Rs. 000 Rs. 000 To Materials issued to site 5,000 By Materials at site 1,800 To Direct wages 3,800 By Materials returned 100 To Wages accrued 110 By Cost of contract 8,780 To Plant hire 700 To Site Office Costs 270 To Direct epenses 500 To Depreciation of special plant ,680 10,680 IPCC_34e_Costing_Contract Costing_Assignment Solutions 76

6 No.1 for CA/CWA & MEC/CEC MASTER MINDS To Cost of contract 8,780 To Profit & Loss A/c 1,200 (Refer to working note 2) To Workinprogress c/d(profit in 20 reserve) 10,000 10,000 Working notes: Cost of work certified 100 lacs 1. Percentage of contract completion % Value of the Contract 108 lacs 2. Since the percentage of Contract completion is more than 90% therefore the profit to be taken to Profit and Loss Account can be computed by using the following formula. Cash received Work certified Profit to be taken to P & L A/c Budged/Estimated Profit Work certified Contract price 1. Percentage of Completion 7,200 10,000 7,200 1,800 1,800 Rs.1,200 10,000 10,800 10,800 Problem No.8 Rs.27,50,000 Rs.32,50, % 2. Current Year Profit Income till date (i.e. WC + WUC) Rs. 6,75,000 less Ependiture till date (Rs. 27,50,000 + Rs. 1,75,000) Rs. 22,50, Estimated Total Profit (ETP) Contract Price less Estimated Total Rs. 7,50,000 Costs Rs. 32,50,000 (Rs. 22,50,000 + Rs. 2,50,000) 4. Profit to be transferred to P & L Least of the following (a) to (f) Rs. 3,47,727 a. Estimated Total Profit Rs.27,50,000 Rs.7,50,000 Rs.6,34, 615 Rs.32,50,000 b. Estimated Total Profit CashReceived Contract Pr ice Rs.27,50,000 Rs.21,25,000 Rs.7,50,000 Rs.4,90,385 Rs.32,50,000 Rs.27,50,000 Cost tilldate Rs.22,50,000 c. Estimated Total Profit Rs.7,50,000 Rs.6,75, 000 Estimated TotalCosts 25,00,000 d. Estimated Total Profit Cost tilldate Estimated TotalCosts CashReceived 22,50,000 Rs.21,25,000 7,50,000 Rs.5,21,591 25,00,000 Rs.27,50,000 Rs.27,50,000 e. Estimated Total Profit Rs.6,75,000 Rs.5,71, 154 Rs.32,50,000 IPCC_34e_Costing_Contract Costing_Assignment Solutions 77

7 2 NotionalPr 3 ofit CashReceived 2 Rs.6,75,000 3 Rs.21,25,000 Rs.3,47,727 Rs.27,50,000 Material Standard Quantity Problem No. 9 Calculation of claim under escalation clause Contract Price Actual Price Deviation in price Escalation claim A (5.00) (2500) B ,000 C Claim for Materials 2,700 Labour Standard hours Contract Rate Actual Rate Deviation in price Escalation claim X 4, ,200 Y 2, ,200 Z 9, Claim for Labour 2,400 Total claim under Escalation clause 2, ,400 5,100 Note: Actual Quantity and Actual Hours need not be considered. THE END IPCC_34e_Costing_Contract Costing_Assignment Solutions 78

CONTRACT COSTING. Contracts given on lump sum fixed price is fixed price contract.

CONTRACT COSTING. Contracts given on lump sum fixed price is fixed price contract. CONTRACT COSTING Definition: Contract costing is that method of costing in cost accounting which is used to collect and identify all the expenses relating to a specific contract. It is a way of providing