Contract Costing. CA Past Years Exam Questions

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1 Contract Costing CA Past Years Exam Questions Question : 1 (Nov, 1994) A company undertook a contract for construction of a large building complex. The construction work commenced on 1 st April 2011 and the following data are available for the year ended 31 st March, Contract price 35,000 Work certified 20,000 Progress payments received 15,000 Materials issued to site 7,500 Planning & estimating costs 1,000 Direct wages paid 4,000 Materials returned form site 250 Plant hire charges 1,750 Wage related costs 500 Site office costs 678 Head office expenses apportioned 375 Direct expenses incurred 902 Work is not certified 149 The contractors own a plant which originally cost 20 lacs has been continuously used in this contract throughout the year. The residual value of the plant after 5 years of life is expected to be 5 lacs. Straight line method of depreciation is in use. As on 31 st March 2012 the direct wages due and payable amounted to 2,70,000 and the materials at site were estimated at 2,00,000. (i) Prepare the contract account for the year ended 31 st March (ii) Show the calculation of profit to be taken to the profit and loss account of the year. (iii) Show the relevant balance sheet entries. Question : 2 (Nov, 2004) Brock Construction Ltd. commenced a contract on November 1, The total contract was for 39,37,500. It was decided to estimate the total profit on the contract and to take to the credit of P/L A/c that proportion of estimated profit on cash basis, which work certified bears to the contract price. Actual expenditure for the period November 1, 2012 to October 31, 2013 and estimated expenditure for November 1, 2013 to March 31, 2014 are given below: November 1, 2012 to October 31, 2013 (Actuals) November 1, 2013 to March 31, 2014 (Estimated) Material issued 6,75,000 12,37,500 Labour : Paid 4,50,000 5,62,500 Prepaid 25,000 Outstanding 2,500 Plant purchased 3,75,000 Expenses: Paid 2,00,000 3,50,000 Outstanding 50,000 25,000 Plant returns to store 75,000 3,00,000 Page No: 1.1

2 (historical cost) (on March 31, 2013) (on March 31, 2014) Work certified 20,00,000 Full Work uncertified 75,000 Cash received 17,50,000 Material at site 75,000 37,500 The plant is subject to annual 33% on written down value method. The contract is likely to be completed on March 31, Prepare the Contract Account from November 1, 2012 to October 31, Question : 3 May, 2001) Paramount Engineers are engaged in construction and erection of a bridge under a long term contract. The cost incurred upto was as under:- ( in lakhs) Direct Material Cost 280 Direct Labour Cost 100 Overheads 60 Erection cost The contract price is 11 crores and cash received till was 6 crores. A technical estimate of the contract indicates the following degree of completion of work - Direct material 70%, direct labour 50%, Overheads 60%, and Erection 40%. You are required to compute the profit that could be taken to P&L Account as on Question : 4 (Nov, 2002) A construction company undertook a contract at an estimated price of 108 lacs, which includes a budgeted profit of 18 lacs. The relevant data for the year ended are as under: ( 000) ( 000) Materials issued to site 5,000 Materials returned from site 100 Direct wages paid 3,800 Direct expenses 500 Plant hired 700 Work certified 10,000 Site office costs 270 Progress payment received 7,200 A special plant was purchased specifically for this contract at 8,00,000 and after use on this contract till the end of , it was valued at 5,00,000. This cost of materials at site at the end of the year was estimated at 18,00,000. Direct wages accrued as on was 1,10,000. Prepare the contract account for the year ended 31 st March, 2008 and compute the profit to be taken to the profit and loss account. Question : 5 (May, 2006) RST Construction Ltd. commenced a contract on April 1, The total contract was for 49,21,875. It was decided to estimate the total Profit on the contract and to take to the Credit of Profit and Loss Account that proportion of estimated profit on cash basis, which work completed bears to total Contract. Actual expenditure for the period April 1, 2005 to March 31, 2006 and estimated expenditure for April 1, 2006 to September 30, 2006 are given below: April 1, 2005 to March 31, 2006 (Actuals) April 1, 2006 to September 30, 2006 (Estimated) Materials Issued 7,76,250 12,99,375 Labour : Paid 5,17,500 6,18,750 : Prepaid 37,500 : Outstanding 12,500 5,750 Plant Purchased 4,00,000 Expenses : Paid 2,25,000 3,75,000 : Outstanding 25,000 10,000 : Prepaid 15,000 Plant returns to Store (historical cost) 1,00,000 3,00,000 Page No: 1.2

3 (On Sept 30, 2005) (On Sept 30, 2006) Work certified 22,50,000 Full Work uncertified 25,000 Cash received 18,75,000 Materials at site 82,500 42,500 The plant is subject to annual 25% on written down value method. The contract is likely to be completed on September 30, Prepare the contract account Determine the profit on the contract for the year which has to be credited to Profit and Loss Question : 6 (May, 2007) AKP Builders Limited commenced a contract on 1 st April The total contract was for 5,00,000. Actual expenditure for the period 1 st April 2013 to 31 st March 2014 and estimated expenditure for 1 st April 2014 to 31 st December 2014 are given below- Particulars (Actuals) April to December 2014 (9 months) (Estimated) Material Issued 90,000 85,750 Labour : Paid 75,000 87,325 Outstanding at the end 6,250 8,300 Plant 25,000 Sundry Expenses : Paid 7,250 6,875 Prepaid at the end 625 Establishment charges 14,625 A part of the material was unsuitable and was sold for 18,125 (Cost being 15,000) and a part of plant was scrapped and disposed of for 2,875. The value of plant at site on 31 st March, 2014 was 7,750 and the value of material at site was 4,250. Cash received on account to date was 1,75,000, representing 80% of the work certified. The cost of work uncertified was valued at 27,375. The contractor estimated further expenditure that would be incurred in completion of the contract: The contract would be completed by 31 st December A further sum of 31,250 would have to be spent on the plant and the residual value of the pant on the completion of the contract would be 3,750. Establishment charges would cost the same amount per month as in the previous year. 10,800 would be sufficient to provide for contingencies. Prepare Contract account and calculate estimated total profit on this contract. Profit transferrable to Profit and Loss account is to be calculated by reducing estimated Profit in proportion of work certified and contract price. Question :7 (June, 2007) A Contract is estimated to be 80% complete in its first year of construction as certified. The contractee pays 75% of value of work certified, as and when certified and makes the final payment on the competing of contract. The following information is available for the first year Cost of Work-In-Progress Uncertified 8,000 Profit transferred to Profit & Loss Account at the end of year I on incomplete contract 60,000 Cost of work to date 88,000 Calculate the Value of Work-In-Progress Certified and the Amount of Contract Price. Page No: 1.3

4 Question : 8 (May, 2007) Modern Constructions Ltd obtained a contract No B-37 for 40 lakhs. The following balances and information relate to the contract for the year ended- Particulars () () WIP Work Certified (cumulative) 9,40,000 30,00,000 Work Uncertified 11,200 32,000 Material at site 8,000 20,000 Accrued Wages 5,000 3,000 Additional Information relating to the year are Particulars Material Issued from Stores 4,00,000 Material directly purchased 1,50,000 Wages Paid 6,00,000 Architect s Fees 51,000 Plant Hire Charges 50,000 Indirect Expenses 10,000 Share of General Overheads for B-37 18,000 Material returned to Supplier 15,000 Fines and Penalties paid 12,000 Material Returned to Stores 25,000 The contractee pays 80% of Work Certified in cash. You are required to prepare 1. Contract Account showing clearly the amount of profits transferred to Profit and Loss Account. 2. Contractee s Account 3. Balance Sheet (Extracts) Question : 9 (June, 2009) The following details are available from the books of accounts of a contractor with respect to a particular construction work for the year ended 31 st March,2009: Contract price 91,00,000 Cash received from contractee (90% of work certified) 71,91,000 Materials sent to site 35,82,600 Planning and estimation cost 3,50,000 Direct wages paid 32,62,700 Cost of plant installed at site 7,00,000 Direct expenses 1,68,000 Establishment expenses 2,03,000 Material returned to store 14,840 Head office expenses apportioned 2,50,000 Cost of work uncertified 3,17,000 On 31 st March,2009 Material at site 85,400 Accrued direct wages 78,120 Accrued direct expenses 9,310 Value of plant (as revalued) 6,16,000 Required (i) Prepare the contract account for the year ended 31 st March, 2009 (ii) Show the relevant balance sheet entries. Page No: 1.4

5 Question : 10 (Nov, 2010) PQR Construction limited commenced a contract on April 1,2009. The total contract was for 27,12,500. It was decided to estimate the total profit and to take to the credit of profit and loss account the proportion of estimated profit on cash basis which work certified bears to the total contract. Actual expenditure in and estimated expenditure in are given below: Actual () Estimated () Material issued 4,56,000 8,14,000 Labour: Paid 3,05,000 3,80,000 Outstanding at end 24,000 37,500 Plant purchased 2,25,000 Expenses: paid 1,00,000 1,75,000 Outstanding at the end 25,000 Prepaid at the end 22,500 Plant returned to stores (a historical stores) 75,000 (on Dec 31,2010) 1,50,000 Material at site 30,000 75,000 Work-in-progress certified 12,75,000 Full Work-in-progress uncertified 40,000 Cash received 10,00,000 Full The plant is subject to annual 20% of WDV cost. Contract is likely to be completed on December 31, (i) Prepare the contract account for the year (ii) Estimate the profit on the contract for the year on prudent basis which has to be credited to profit and loss account. Question : 11 (May, 2012) A contractor commenced a contract on The costing records concerning the said contract reveal the following information as on : Amount of () Material sent site 7,74,300 Labour paid 10,79,000 Labour outstanding as on ,02,500 Salary to engineer 20,500 per month Cost of plant sent to site ( ) 7,71,000 Salary to supervisor (¾ time devoted to contract) 9,000 per month Administration & other expenses 4,60,600 Prepaid administration expenses 10,000 Material in hand at site as on ,800 Plant used for the contract has an estimated life of 7 years with residual value at the end of life 50,000. Some of material costing 13,500 was found unsuitable and sold for 10,000. Contract price was 45,00,000. On two third of the contract was completed. The architect issued certificate covering 50% of contract price and contractor has been paid 20,00,000 on account. Depreciation on plant is charged on straight line basis. Prepare Contract Account. Page No: 1.5

6 Question : 12 (May, 2014) M/s ABID Constructions undertook a contract at a price of 171 lacs. The relevant data for the year ended 31 st March, 2015 are as under: ( 000) Material issued at site 7,700 Direct wages paid 3,300 Site office cost 550 Material return to store 175 Work certified 12,650 Work uncertified 225 Progress payment received 10,120 Prepaid site office cost as on Direct wages outstanding as on Material at site as on Additional information: (a) A plant was purchased for the contract at 8,00,000 on (b) 15% per annum is to be charged. (c) Material which cost 1,30,000 was destroyed by fire. Prepare: (i) Contract Account for the year ended 31 st March, 2015 and compute the profit to be taken to the profit & loss account. (ii) Account of contractee. (iii) Profit & Loss Account showing the relevant items. (iv) Balance sheet showing the relevant items. Question : 13 (Nov, 2014) Z Limited obtained a contact no. 999 for 50 lakhs. The following are available in respect of this contract for the year ended 31 st March 2015: Particulars Materials purchased 1,60,000 Materials issued from stores 5,00,000 Wages and salaries paid 7,00,000 Drawing and maps 60,000 Sundry expenses 15,000 Electricity charges 25,000 Plant Hire expenses 60,000 Sub-contact cost 20,000 Materials returned to stores 30,000 Materials returned to suppliers 20,000 The following balance relating to the contract no. 999 for the year ended on 31 st March 2014 and 31 st March 2015 available: As on 31 st March 2014 As on 31 st March 2015 Work certified 12,00,000 35,00,000 Work uncertified 20,000 40,000 Materials at site 15,000 30,000 Wages outstanding 10,000 20,000 The contractor receives 75% of work certified in cash. Prepared Contact Account and Contractee s Account. Page No: 1.6

7 Question : 14 (Nov, 2015) PVK Constructions commenced a contract on 1 st April, Total contract value was 100 lakhs. The contract is expected to be completed by 31 st December, Actual expenditure during the period 1 st April, 2014 to 31 st March, 2015 and estimated expenditure for the period 1 st April, 2015 to 31 st December, 2016 are as follows: Particulars Actual () Estimated () Period 1 st April, 2014 to 31 st March, st April, 2015 to 31 st December, 2016 Material issued 15,30,000 21,00,000 Direct wages paid 10,12,500 12,25,000 Direct wages outstanding 80,000 1,15,000 Plant purchased 7,50, Expenses paid 3,25,000 5,40,000 Prepaid expenses 68, Site offices expenses 3,00, Part of the material procured for the contract was unsuitable and was sold for 2,40,000 (cost being 2,55,000) and a part of plant was scrapped and disposed off for 80,000. The value of plant at site on 31 st March, 2015 was 2,50,000 and the value of material at site was 73,000. Cash received on account to date was 36,00,000, representing 80% of the work certified. The cost of work uncertified was valued at 5,40,000. Estimated further expenditure for completion of contract is as follows: - (i) An additional amount of 4,62,500 would have to be spent on the plant and the residual value of the plant on this completion of the contract would be 67,500. (ii) Site office expenses would be the same amount per month charged in the previous year. (iii) An amount of 1,57,500 would have to be incurred towards consultancy charges. Prepare the contract account and calculate the estimated total profit on this contract. Page No: 1.7

12 (A). CONTRACT COSTING

12 (A). CONTRACT COSTING MODEL WISE ANALYSIS OF PAST EXAM PAPERS OF IPCC No. MODEL NAME N-10 M-11 TO N-11 M-12 N-12 M-13 TO N-13 M-14 N - 14 M-15 N-15 M-16 N-16 M-17 N-17 1. PREPARATION OF CONTRACT ACCOUNT