Question

Q 3: ABC Ltd., took a contract in 2018 for construction of a contract for Rs. 500,000 estimation that the cost would be Rs. 460,000. At the end of the 2018, the company had received Rs. 180,000 being 90% of the work certified. Certain work not yet certified had cost of Rs. 5,000. Expenditures incurred was: Material = Rs. 25,000, Labour = 150,000 and Plant = Rs. 10,000 Material costing Rs. 2,500 was damaged and had to be disposed of for Rs. 500. Plant I considered as having depreciated by 25%. Required: Prepare Contract Account and relevant Ledgers Accounts. Show your calculation of the profit to be credited to P & L Account.

Answer 1

Contract Account Amount Particulars Particulars Amount Materials Labour Plant 200000 25000 Work in progress: 150000 10000 Work certified (180000/90%) 2000 Work uncertified Material disposed) Costing P&L A/C (loss on disposal of material ie,2500-500) 5000 2500 2500 Plant Depreciation (10000*25%) Costing P&L A/C (Notional Profit Bal fig) 23000 210000 210000 Profit to be transferred to profit and loss account = Notional profit* 2/3* cash ratio = 23000*2/3*90% 13800 Since the work completed is 90% profit to be transferred is 2/3 of notional profit* cash ratio